Mainstream economics has recognized only recently the necessity to incorporate political constraints into economic analysis intended for policy advisors. Incentives and Political Economy uses recent advances in contract theory to build a normative approach to constitutional design in economic environments. The first part of the book remains in the tradition of benevolent constitutional design with complete contracting. It treats politicians as informed supervisors and studies how the Constitution should control them, in particular to avoid capture by interest groups. Incentive theories for the separation of powers or systems of checks and balances are developed. The second part of the book recognises the incompleteness of the constitutional contract which leaves discretion to the politicans selected by the electoral process. Asymmetric information associates information rents with economic policies and the political game becomes a game of costly redistribution of those rents.
Professor Laffont investigates the trade-offs between an inflexible constitution which leaves little discretion to politicians but sacrifices ex post efficiency and a constitution weighted towards ex post efficiency but also giving considerable discretion to politicians to pursue private agendas. The final part of the book reconsiders the modeling of collusion given asymmetric information. It proposes a new approach to characterizing incentives constraints for group behaviour when asymmetric information is non-verifiable. This provides a methodology to characterise the optimal constitutional response to activities of interest groups and to study the design of any institution in which group behavior is important.
`deals with the subject in a refreshing piecemeal approach that will allow researchers to embed elements of the theory into their favourite political economy models.'
Aslib Book Guide, Vol.65, Aug. 2000.
Chapter 1: Introduction
Part I: Politicians as Informed Supervisors
Chapter 2: The Complete Contract Approach to Constitutional Design
Chapter 3: An Incentive Theory of the Separation of Powers
Chapter 4: Checks and Balances
Part II: Flexibility versus Discretion in Constitutional Design
Chapter 5: Political Economy and Industrial Policy
Chapter 6: Political Economy and the Marginal Cost Pricing Controversy
Chapter 7: Toward a Political Theory of the Emergence of Environmental Incentive Regulation
Part III: Coalition Formation and Constitutional Design
Chapter 8: Optimal Constitutional Responses to Coalition Formation
Chapter 9: Collusion and Decentralization
Chapter 10: Concluding Remarks
Series: Clarendon Lectures in Economics
Number Of Pages: 272
Published: 1st June 2000
Publisher: Oxford University Press
Country of Publication: GB
Dimensions (cm): 22.86 x 14.61
Weight (kg): 0.43