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Economics versus Politics: Pitfalls of Policy Advice

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  • Daron Acemoglu
  • James A. Robinson

Abstract

The standard approach to policy making and advice in economics implicitly or explicitly ignores politics and political economy and maintains that if possible, any market failure should be rapidly removed. This essay explains why this conclusion may be incorrect; because it ignores politics, this approach is oblivious to the impact of the removal of market failures on future political equilibria and economic efficiency, which can be deleterious. We first outline a simple framework for the study of the impact of current economic policies on future political equilibria -- and indirectly on future economic outcomes. We then illustrate the mechanisms through which such impacts might operate using a series of examples. The main message is that sound economic policy should be based on a careful analysis of political economy and should factor in its influence on future political equilibria.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.2.173
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 27 (2013)
Issue (Month): 2 (Spring)
Pages: 173-92

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Handle: RePEc:aea:jecper:v:27:y:2013:i:2:p:173-92

Note: DOI: 10.1257/jep.27.2.173
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Citations

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Cited by:
  1. Aoki, Masahiko, 2014. "Economic and Political Transitions from Premodern to Modern States in the Meiji Restoration and Xinhai Revolution: A Strategic Approach," ADBI Working Papers 486, Asian Development Bank Institute.
  2. Morgan, Horatio M., 2013. "Financial Development and Economic Growth: New Lessons from Small Open Economies," MPRA Paper 49842, University Library of Munich, Germany.
  3. Lusk, Jayson L., 2013. "Lunch with Pigou: Externalities and the “Hidden†Cost of Food," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(3), December.
  4. Hyytiainen, Kari & Ahlvik, Lassi & Ahtiainen, Heini & Artell, Janne & Dahlbo, Kim & Huhtala, Anni, 2013. "Spatially explicit bio-economic modelling for the Baltic Sea: Do the benefits of nutrient abatement outweigh the costs?," Discussion Papers 160728, MTT Agrifood Research Finland.
  5. Morgan, Horatio M., 2013. "The Political Economy of Trade-Financial Liberalization and Financial Underdevelopment: A perspective from China," MPRA Paper 50031, University Library of Munich, Germany.
  6. Gundlach, Erich & de Vaal, Albert, 2014. "Look before you leap: Why politicians may have a point to be hesitant about the gains from trade," Economic Systems, Elsevier, vol. 38(1), pages 89-99.

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