Political Economy in Macroeconomics / Edition 1

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Overview

Originally, economics was called politcal economy, and those studying it readily accepted that economic decisions are made in a political world. But economics eventually separated itself from politics to pursue rigorous methods of analyzing individual behavior and markets. Recently, an increasing number of economists have turned their attention to the old question of how politics shape econoomic outcomes. To date, however, this growing literature has lacked a cogent organization and a unified approach. Here, in the first full-length examination of how political forces affect economic policy decisions, Allan Drazen provides a systematic treatment, organizing the increasingly influential "new political economy" as a more established field at the highly productive intersection of economics and political science.
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Editorial Reviews

Journal of Economic Literature - Gilles Saint-Paul
Very well written and concise. . . Highly recommend[ed] . . . to any student interested in political economy.
Journal of International Economics - Leonardo Bartolini
[A] magnificent new book. . . . Drazen's book has established the benchmark for years to come, in terms of both coverage and depth of critical assessment. . . . This is a book you will want on your shelf.
Journal of Economic Literature
Very well written and concise. . . Highly recommend[ed] . . . to any student interested in political economy.
— Gilles Saint-Paul
Journal of International Economics
[A] magnificent new book. . . . Drazen's book has established the benchmark for years to come, in terms of both coverage and depth of critical assessment. . . . This is a book you will want on your shelf.
— Leonardo Bartolini
From the Publisher
Winner of the 2000 Award for Best Professional/Scholarly Book in Economics, Association of American Publishers

"Very well written and concise. . . Highly recommend[ed] . . . to any student interested in political economy."—Gilles Saint-Paul, Journal of Economic Literature

"[A] magnificent new book. . . . Drazen's book has established the benchmark for years to come, in terms of both coverage and depth of critical assessment. . . . This is a book you will want on your shelf."—Leonardo Bartolini, Journal of International Economics

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Product Details

  • ISBN-13: 9780691092577
  • Publisher: Princeton University Press
  • Publication date: 12/26/2001
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 792
  • Sales rank: 1,415,612
  • Product dimensions: 6.10 (w) x 9.10 (h) x 1.70 (d)

Table of Contents

Preface xi
Introductory Note xiii
Part I Basic Issues and Tools of Analysis 1
Chapter 1 What is a Political Economy? 3
1.1. Introduction 3
1.2. Politics and Economics 5
1.3. Types of Heterogeneity 9
1.4. An Illustration of Approaches 12
1.5. Plan of the Book 18
Chapter 2 Economic Models for Political Analysis 20
2.1. Introduction 20
2.2. The Principal-Agent Problem 22
2.3. Discrete Time Dynamic Models--Dynamic Programming 31
2.4. The Overlapping Generations Model 35
2.5. Effects of Uncertain Future Policies 38
2.6. Conclusions 58
Chapter 3 Decisionmaking Mechanisms 60
3.1. Introduction 60
3.2. How Much Political Detail? 61
3.3. Choosing Decisionmaking Mechanisms 64
3.4. Direct Democracy 70
3.5. Representative Democracy 77
3.6. Multiparty Systems 85
3.7. Interest Groups and Lobbying 90
3.8. Transaction Cost Politics 96
3.9. Conclusions 98
Part II Commitment, Credibility, and Reputation 99
Chapter 4 The Time-Consistency Problem 101
4.1. Introduction 101
4.2. Capital Taxation 104
4.3. Time Inconsistency as a Conflict of Interests 110
4.4. The Barro-Gordon Model 113
4.5. Seigniorage Revenue and the Optimum Quantity of Money 121
4.6. Commitment versus Flexibility 126
4.7. Conclusions 130
Chapter 5 Laws, Institutions, and Delegated Authority 131
5.1. Introduction 131
5.2. Laws, Constitutions, and Social Contracts 132
5.3. Delegation of Authority 140
5.4. Central Bank Independence 142
5.5. Fiscal Structures for Time Consistency 157
5.6. Conclusions 164
Chapter 6 Credibility and Reputation 166
6.1. Introduction 166
6.2. Reputation 168
6.3. "Reputation" under Complete Information 169
6.4. Reputation under Incomplete Information--Mimicking 175
6.5. Does Reputation "Solve" the Time-Consistency Problem?--Three Caveats 183
6.6. Signaling 187
6.7. Reputation for Not Reneging on Commitments 195
6.8. Credibility and External Circumstances 201
6.9. Ambiguity, Secrecy, and Imprecise Control 208
6.10. Conclusions 214
Part III Heterogeneity and Conflicting Interests 217
Chapter 7 Elections and Changes of Policymakers 219
7.1. Introduction 219
7.2. Elections and Policymaker Performance 223
7.3. The Opportunistic Political Business Cycle 228
7.4. Partisan Political Cycles 246
7.5. Competence and Prospective Voting 268
7.6. Campaign Promises 278
7.7. Interactions of the Executive and the Legislature 283
7.8. Multiparty Systems and Endogenous Election Dates 293
7.9. Tying the Hands of One's Replacement 300
7.10. Conclusions 308
Chapter 8 Redistribution 309
8.1. Introduction 309
8.2. Redistribution of Income 311
8.3. Differential Transfers 318
8.4. Nonmonetary Redistribution 324
8.5. Rent Seeking and Predation 334
8.6. Intergenerational Redistribution 345
8.7. Redistribution and Mobility 354
8.8. Conclusions 370
Chapter 9 Public Goods 372
9.1. Introduction 372
9.2. Public Goods--The Neoclassical Approach 375
9.3. Provision of Public Goods in Practice 379
9.4. Voluntary Provision of Public Goods--Free Riders and Collective Action 382
9.5. Voluntary Provision of Public Goods--Clubs 391
9.6. The Static Public Goods Game 395
9.7. The War of Attrition in Public Goods Provision 397
9.8. Conclusions 401
Chapter 10 Inaction, Delay, and Crisis 403
10.1. Introduction 403
10.2. Economic Arguments 407
10.3. Vested Interests 411
10.4. Nonadoption Due to Uncertainty about Individual Benefits 414
10.5. "Communication" Failures 423
10.6. Conflict over the Burden of Reform 432
10.7. Common Property Models 439
10.8. Economic Crises 444
10.9. Conclusions 454
Part IV Application to Policy Issues 455
Chapter 11 Factor Accumulation and Growth 457
11.1. Introduction 457
11.2. Basic Models of Fiscal Policy and Capital Accumulation 461
11.3. Imperfect Capital Markets, Externalities, and Endogenous Income Distribution 474
11.4. Political Institutions and Regimes 488
11.5. Socio-Political Instability 500
11.6. Empirical Determinants of Growth 513
11.7. Conclusions 524
Chapter 12 The International Economy 526
12.1. Introduction 526
Part I Exchange-Rate Arrangements 529
12.2. Fixed versus Flexible Exchange Rates 529
12.3. Currency Crises and Contagious Speculative Attacks 536
12.4. Monetary Unions 544
Part II Macroeconomic Interdependence 559
12.5. International Policy Cooperation 559
12.6. Political Responses to External Shocks 579
Part III International Capital and Aid Flows 580
12.7. Capital Controls 580
12.8. Sovereign Borrowing 587
12.9. Foreign Aid 601
12.10. Conclusions 613
Chapter 13 Economic Reform and Transition 615
13.1. Introduction 615
13.2. Defining the Issues 617
13.3. Economic and Political Constraints 621
13.4. The Implications of Magnitude--A Formal Analysis 626
13.5. Heterogeneity and Political Constraints 632
13.6. Labor Reallocation 643
13.7. Privatization 653
13.8. Price Liberalization 663
13.9. Conclusions 674
Chapter 14 The Size of Government and the Number of Nations 675
14.1. Introduction 675
14.2. The Scope of Government 677
14.3. The Size of Government--Government Spending 679
14.4. Government Debt and Deficits 690
14.5. Budgetary Rules and Institutions 697
14.6. The Number of Nations 707
14.7. Conclusions 731
Bibliography 735
Author Index 765
Subject Index 771
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