POLITICAL ECONOMY
EC 325
London School of Economics
,Motivation: Positive vs normative approach to public policies
• Public Finance talks a lot about how policies should be.
• But the way government is set up constrains the set of implementable
policies.
• Political Economy is about trying to understand positively how public
policies are.
• Outline
1. The intricacies of social choice
2. Democracy in an economic model
3. Institutions and the political Coase theorem
4. The scope of government
, Motivation: Social Choice
• We can think of policy decisions as a problem of collective decision-
making.
• Many of the institutions of government attempt to solve this problem
by creating rules for how individual input leads to collective action.
• Main problem: individuals have different preferences and opinions
about what policies are desirable.
• This seemingly trite observation leads to paradoxes!
EC 325
London School of Economics
,Motivation: Positive vs normative approach to public policies
• Public Finance talks a lot about how policies should be.
• But the way government is set up constrains the set of implementable
policies.
• Political Economy is about trying to understand positively how public
policies are.
• Outline
1. The intricacies of social choice
2. Democracy in an economic model
3. Institutions and the political Coase theorem
4. The scope of government
, Motivation: Social Choice
• We can think of policy decisions as a problem of collective decision-
making.
• Many of the institutions of government attempt to solve this problem
by creating rules for how individual input leads to collective action.
• Main problem: individuals have different preferences and opinions
about what policies are desirable.
• This seemingly trite observation leads to paradoxes!
