Do societies choose inefficient policies and institutions, in contrast to what would be suggested by a reasoning extending the Coase Theorem to politics? Do societies choose inefficient policies and institutions because of differences in the beliefs and ideologies of their peoples or leaders? Or are inefficiencies in politics and economics the outcome of social and distributional conflicts? This paper discusses these various approaches to political economy, and develops the argument that there are strong empirical and theoretical grounds for believing that inefficient policies and institutions are prevalent, and that they are chosen because they serve the interests of politicians or social groups holding political power, at the expense of the society at large. At the center of the theoretical case are the commitment problems inherent in politics: parties holding political power cannot make commitments to bind their future actions because there is no outside agency with the coercive capacity to enforce such arrangements.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9377.
Length: Date of creation: Dec 2002 Date of revision: Handle: RePEc:nbr:nberwo:9377
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Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue N10 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - General, International, or Comparative
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.