CONSTITUTIONAL ECONOMICS
Constitutional economics is the study, within a rational-choice framework, of the choice
of some of the constraints facing individuals in their decision problems.
To elaborate somewhat, let us proceed b y outlining how constitutional
economics compares t o regular e c o n o m i c s and public choice, respectively. First, the
standard form of microeconomic theory focuses attention o n the choices of individuals
under a given set of constraints, often re la ti ng to technology and b ud ge ts . While
the constitutional approach retains the model of economic agents which is predominant
in most of economic theory - homo economics - along with the related presupposition of
methodological individualism', it differs from standard economics in at least three ways:
(i) The object of analysis is different: instead of viewing all constraints as
exogenous, some are considered open to various forms of (ultimately individual) choice
- and hence also open to study for the economist qua scientist of human behavior. The
analysis is moved up one step, in its focus on the rules or institutions which constitute the
framework within which ordinary political, social, and economic choices are made
(in a utility maximizing manner). That is, instead o f looking at choice within rules, the
constitutional economist l oo ks at choice between rules - and he does so on the premise
t h a t man is able to choose rationally, i n d i v i d u a l l y and collectively, also in this realm.
(ii) As is the case for the rational choice approach to human behavior in general,
constitutional economics opts for methodological consistency in extending the just
mentioned model of man to all (including non-economic) spheres of life, such as
politics, law, and religion.
(iii) As for the role of the constitutional economist, following Buchanan (1959, 1979), it is
somewhat different from that of the neoclassical welfare economist, who acts as a policy advisor
to decision makers. Rather, it is that of one who offers "guidance to those who participate
in the discussion of constitutional change. Constitutional economics offers a potential
for normative advice to the member of the continuing constitutional convention,
whereas orthodox economics offers a potential for advice to the practicing politician."
Second, constitutional economics differs from public choice in that the latter looks at
how agents behave in 1the political sphere (as politicians, voters, interest-group
members, bureaucrats, etc.) under given institutional structures. Thus, it is similar to
regular economics in looking at choice within rules but has more of its subject
matter in common with constitutional economics (although constitutional economics
, may deal with non-political topics as well.) The positive results of public choice
research-, e.g., the existence of "government failures," also provides a rationale for
constitutional studies, since if such failures were non-existent, there would be a much
less compelling reason for comparing alternative sets of rules: an unconstrained
benevolent dictator would then be splendidly able to take care of collective affairs.
What i s the l a r g e r intellectual tradition in which constitutional economics may
properly b e placed? Historically, as in many other fields of modern economics, Smith
(1776) is the main originator of the type of analysis being conducted. Unlike most
of modern microeconomics, Smith did not put emphasis on the allocation aspects
of economic political organization; instead, he engaged in a form of comparative
institutional inquiry in which the working properties of a free market economy were
contrasted with those of a mercantilist regime already in place. In this venture, he
focused on demonstrating that the market order was more effectual in allocating
resources to the satisfying of individual preferences - and not to the achievement,
necessarily, of efficiency as interpreted in the two welfare theorems. Hence, his overall
approach w as about the choosing of rules within which people had to interact.
Furthermore, Wicksell (1896) was o f g r e a t importance for t h e development of
constitutional economics. He argued that if one wanted policy outcomes to change,
one should not try to influence the behavior of the decision makers directly but, rather,
aim at changing the decision-making rules. One of his contributions was to stress the
unanimity criterion as a normative benchmark for collective decision making, which
relates to the Pareto criterion in the way in which efficiency is interpreted and which
is sometimes, albeit not necessarily, used in normative constitutional economics. The
setting: only individual evaluations count and the only source of information about
these evaluations stems from revealed choice behavior; and on the basis of this, a
change is deemed efficient if and only if all individuals explicitly acquiesce.
Let us close this section by2 reflecting briefly on a philosophical i s s u e : Is constitutional
economics at base a positive or normative e n d e a v o r ? The answer is, "Both, and most
often in a rather interrelated fashion." The positive part is about examining, in various
dimensions, the real political and economic effects of alternative constitutional
Constitutional economics is the study, within a rational-choice framework, of the choice
of some of the constraints facing individuals in their decision problems.
To elaborate somewhat, let us proceed b y outlining how constitutional
economics compares t o regular e c o n o m i c s and public choice, respectively. First, the
standard form of microeconomic theory focuses attention o n the choices of individuals
under a given set of constraints, often re la ti ng to technology and b ud ge ts . While
the constitutional approach retains the model of economic agents which is predominant
in most of economic theory - homo economics - along with the related presupposition of
methodological individualism', it differs from standard economics in at least three ways:
(i) The object of analysis is different: instead of viewing all constraints as
exogenous, some are considered open to various forms of (ultimately individual) choice
- and hence also open to study for the economist qua scientist of human behavior. The
analysis is moved up one step, in its focus on the rules or institutions which constitute the
framework within which ordinary political, social, and economic choices are made
(in a utility maximizing manner). That is, instead o f looking at choice within rules, the
constitutional economist l oo ks at choice between rules - and he does so on the premise
t h a t man is able to choose rationally, i n d i v i d u a l l y and collectively, also in this realm.
(ii) As is the case for the rational choice approach to human behavior in general,
constitutional economics opts for methodological consistency in extending the just
mentioned model of man to all (including non-economic) spheres of life, such as
politics, law, and religion.
(iii) As for the role of the constitutional economist, following Buchanan (1959, 1979), it is
somewhat different from that of the neoclassical welfare economist, who acts as a policy advisor
to decision makers. Rather, it is that of one who offers "guidance to those who participate
in the discussion of constitutional change. Constitutional economics offers a potential
for normative advice to the member of the continuing constitutional convention,
whereas orthodox economics offers a potential for advice to the practicing politician."
Second, constitutional economics differs from public choice in that the latter looks at
how agents behave in 1the political sphere (as politicians, voters, interest-group
members, bureaucrats, etc.) under given institutional structures. Thus, it is similar to
regular economics in looking at choice within rules but has more of its subject
matter in common with constitutional economics (although constitutional economics
, may deal with non-political topics as well.) The positive results of public choice
research-, e.g., the existence of "government failures," also provides a rationale for
constitutional studies, since if such failures were non-existent, there would be a much
less compelling reason for comparing alternative sets of rules: an unconstrained
benevolent dictator would then be splendidly able to take care of collective affairs.
What i s the l a r g e r intellectual tradition in which constitutional economics may
properly b e placed? Historically, as in many other fields of modern economics, Smith
(1776) is the main originator of the type of analysis being conducted. Unlike most
of modern microeconomics, Smith did not put emphasis on the allocation aspects
of economic political organization; instead, he engaged in a form of comparative
institutional inquiry in which the working properties of a free market economy were
contrasted with those of a mercantilist regime already in place. In this venture, he
focused on demonstrating that the market order was more effectual in allocating
resources to the satisfying of individual preferences - and not to the achievement,
necessarily, of efficiency as interpreted in the two welfare theorems. Hence, his overall
approach w as about the choosing of rules within which people had to interact.
Furthermore, Wicksell (1896) was o f g r e a t importance for t h e development of
constitutional economics. He argued that if one wanted policy outcomes to change,
one should not try to influence the behavior of the decision makers directly but, rather,
aim at changing the decision-making rules. One of his contributions was to stress the
unanimity criterion as a normative benchmark for collective decision making, which
relates to the Pareto criterion in the way in which efficiency is interpreted and which
is sometimes, albeit not necessarily, used in normative constitutional economics. The
setting: only individual evaluations count and the only source of information about
these evaluations stems from revealed choice behavior; and on the basis of this, a
change is deemed efficient if and only if all individuals explicitly acquiesce.
Let us close this section by2 reflecting briefly on a philosophical i s s u e : Is constitutional
economics at base a positive or normative e n d e a v o r ? The answer is, "Both, and most
often in a rather interrelated fashion." The positive part is about examining, in various
dimensions, the real political and economic effects of alternative constitutional
