Incentives and Political Economy

Paperback | October 15, 2001

byJean-jacques Laffont

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Mainstream economics has only recently recognized the need 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 economicenvironments. It is written by one of Europe's leading theorists. 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 theseparation of powers or systems of checks and balances are developed. The second part of the book recognizes the incompleteness of the constitutional contract which leaves a lot of discretion to the politicians selected by the electoral process. Asymmetric information associates information rents with economic policies and the political game becomes a game of costlyredistribution 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 topoliticians 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 characterize the optimal constitutionalresponse to activities of interest groups and to study the design of any institutions in which group behavior is important.

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Mainstream economics has only recently recognized the need 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 economicenvironments. It is written by one of Europe's ...

Jean-Jacques Laffont is Professor of Economics at the University of Toulouse and director of the Institut d'Economie Industrielle (IDEI). His recent research focuses on regulation, political economy, and development. Winner of the Yrjo Jahnsson award in 1993, he was President of the Econometric Society in 1992 and President of the Eur...

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Format:PaperbackDimensions:272 pages, 8.5 × 5.43 × 0.59 inPublished:October 15, 2001Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199248680

ISBN - 13:9780199248681

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Table of Contents

Chapter 1: IntroductionPart I: Politicians as Informed SupervisorsChapter 2: The Complete Contract Approach to Constitutional DesignChapter 3: An Incentive Theory of the Separation of PowersChapter 4: Checks and BalancesPart II: Flexibility versus Discretion in Constitutional DesignChapter 5: Political Economy and Industrial PolicyChapter 6: Political Economy and the Marginal Cost Pricing ControversyChapter 7: Toward a Political Theory of the Emergence of Environmental Incentive RegulationPart III: Coalition Formation and Constitutional DesignChapter 8: Optimal Constitutional Responses to Coalition FormationChapter 9: Collusion and DecentralizationChapter 10: Concluding Remarks

Editorial Reviews

`Review from previous edition 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.