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rnal of Economic Literature
Vl.XXXV(September 1997), pp. 1173-1204

The Impact of Economics on


ContemporaryPolitical Science

GARY J. MILLER
Washington University in St. Louis

The author wishes to thank Krishna Ladha, Barry Weingast, and Andrew Whitford, along
and suggestions in twritingthis
with several anonymnousreferees, for their helpful comnmnents
paper.

FROM ADAM SMITH until the middle ments, inductive observation, and nor-
of the nineteenth century, leading mative content.
social thinkers made little distinction be- For 70 years, economics and political
tween their economic and political writ- science were to maintain separate re-
ing. The methods of analysis were simi- search agendas and techniques. Political
lar, using largely verbal arguments scientists did not borrow economic tools
dominated by normative concerns. How- or concepts, and did not presume to say
ever, when William S. Jevons wrote The- much about markets. And economists
ory of Political Economy in 1871, he was did not use their mathematical tools to
convinced of the importance of mathe- understand the behavior of political ac-
matical analysis to his discipline. Jevons tors and institutions.
(quoted in Richard Howey 1960, p. xvi) By 1960, however, this began to
was to write, "I wish especially to be- change. Economists began to to study
come a good mathematician, without voters as rational maximizers, politi-
which nothing, I am convinced, can be cians as entrepreneurs, and bureaucrats
thoroughly done." as suppliers in a market-like process
The publication of Jevons' work of consumption, production, and ex-
helped establish the marginalist school change.
in economics, which resulted in a grow- Political science has been profoundly
ing gap between economics and politi- affected by the outward thrust from
cal science. By the time the marginalist economics, addressing as it has central
revolution had run its course in 1890, issues in the discipline of political sci-
the term "political economy" was not ence. Indeed, one could argue that the
used for either mainstream economics effect of economics has been felt more
or political science. Economics was re- strongly in political science than any
oriented toward the study of the price other social science. Recent years have
mechanism in the market, and as a dis- even seen the creation of a sub-disci-
cipline had become decidedly mathe- pline-denoted "positive political the-
matical, deductive, and positive. Politi- ory," to distinguish it from the more
cal science was in effect left behind, traditional political theory-that is
continuing the tradition of verbal argu- grounded in rational choice modeling
1173
1174 Journal of Economic Literature, Vol. XXXV (September 1997)

and uses analytical techniques from sympathy toward) the more famous ra-
economics. Some economists publish in tional choice models or else they cannot
top political science journals and sev- hope to regard themselves as ade-
eral political scientists publish in top quately trained in electoral behavior,
economic journals. Furthermore, the legislative behavior, public policy, and
exploration of economic models of po- increasingly in international relations
litical science has led to a good many and comparative politics as well.
cooperative teams that cross the disci- Evaluating the claims of economists
plinary boundary. and their models of political phenom-
This is not to say that economics has ena has become a major challenge for
been warmly embraced by all political the discipline. Where economic models
scientists. In the current directory of have not fit the facts well, political sci-
the American Political Science Associa- entists and economists have proliferated
tion (APSA), only 337 (4.5%) of the alternative theories or modified theo-
7,505 members of the American Politi- ries. Most important, the standard for
cal Science Association list "positive po- rigorous argumentation has been raised
litical theory" as one of their interest as a result of the conflict. Political sci-
areas-down slightly from 5.2 percent entists dissatisfied with an economic ex-
in 1991. Large proportions of the disci- planation for voting or coalition forma-
pline, especially area studies experts tion have felt the pressure to come up
and some kinds of political philoso- with an equally rigorous model that fits
phers, are largely unaffected in their the facts better. It is hard to see how
teaching and research by ideas im- anyone could regard this dynamic, dia-
ported from economics. lectical process as anything but healthy
Where economics has had the most for the discipline. And, as a result of its
impact, it has also been met by the most confrontation with non-market behavior
controversy. The use of rational choice by voters, legislators, and bureaucrats,
models in political science has been economics has itself been forced to re-
hotly debated in the discipline, and has think such basic notions as rationality,
in fact divided department after depart- incentives, and equilibrium.
ment. The role of rational choice mod- The contribution of economics to po-
els is being subject to renewed scrutiny litical science is too multi-dimensional
and criticism (Donald Green and Ian to review in one paper. This paper will
Shapiro 1994). Central empirical pre- not address the contribution of macro-
dictions from economic models have economics, nor international trade, nor
been held to be incorrect, and basic as- public finance per se, as significant as
sumptions are being recast, even by these have been to particular subfields
those who have been most active in the of political science. Rather, this paper
rational choice paradigm. will focus on the use of rational choice
Indeed, one might argue that eco- models to study four central topics in
nomics has contributed most to the dis- political science: individual voting and
cipline of political science by generat- participation; the aggregation of prefer-
ing this conflict within the discipline. ences; the aggregation of information;
The conflict is of such salience that it and institutional analysis.
has set the research agenda for many These four topics cut across the tradi-
subfields. Graduate students in many tional definitions of political science
areas of political science must have subfields-American politics, compara-
some working understanding (if not tive politics, international relations, and
Miller: Economics and Political Science 1175

political theory being the four most in- Furthermore, all of these phenomena
clusive sub-categories of the discipline. had been posed as puzzles within the
But the four topics addressed have been traditional, normative school of political
at the heart of the debate about rational science, in which citizens were per-
actor models in political science. The ceived to have a duty to stay informed
seminal works in these areas have set and vote, and political parties were
much of the theoretical and empirical viewed as existing to offer sharp alter-
agenda in political science for two de- native agendas to the candidates. An
cades. Economic Theory was something of an
embarrassment to the discipline of po-
I. Homo Economicus and Homo litical science-it provided a compelling
Politicus explanation of several of these conun-
drums; it did so by borrowing axioms
The early models of economists at- and the deductive method from outside
tempted to explain the political behav- the political science discipline; and it
ior of individuals with the same assump- wasn't even written by a senior econo-
tions of rationality that supported mist. It was as if all of political science
economic theory., This first section will could be subsumed by economics-as
examine the political behavior of the in- an exercise left for a graduate student.
dividual; the underlying issue will be And by taking a positive orientation to-
the extent to which a model of the indi- ward the problem, Downsian models
vidual as "homo economicus" has facili- struck many normative political philoso-
tated our understanding of electoral be- phers as vaguely immoral.
havior, collective action, and interest As Gabriel Almond (1993, p. 203), an
group formation. early reader of Downs, explained, the
A. The Rational Voter "bulk of the profession . . . was not
quite ready to adopt the view that
As a graduate student at Stanford's democratic good could come out of the
economics department, Anthony Downs power hunger of politicians selling their
was challenged to consider Schumpe- souls to interests in exchange for sup-
ter's thesis that government officials port and votes." Almond had his own
bring their own private motives to their "qualms" about Downs, as a "strong in-
public offices, and that their public ductivist," "believing that political real-
policies are the result of their private ity was more complicated than anything
goal-oriented behaviors. Downs went the human mind could invent, and
beyond that to construct a comprehen- distrustful of the formal, deductive,
sive theory of democratic decision mak- mathematical impulses that were then
ing that assumes rational, self-serving being felt in the discipline." Neverthe-
behavior on the part of the range of po- less, he pointed out, Downs could not
litical actors, including voters as well as be ignored, because Downs "enabled
party leaders. The attraction and power me to organize and interpret my data
of his book, An Economic Theory of De- more systematically and parsimoniously
mocracy (1957), was that a simple, ele- than my earlier constructs did" (Almond
gant theory subsumed a large range of 1993, pp. 202, 203).
interesting political phenomena-phe- Many political scientists felt the same
nomena as diverse as political party way; others felt that Downs was simply
convergence, voter turnout, and public wrong, and took up the challenge of
ignorance on pressing issues of policy. showing him so. Either way, Downs'
1176 Journal of Economic Literature, Vol. XXXV (September 1997)

theory supplied the impetus for a grow- in the next decade. The voting public's
ing proportion of the research on vot- lack of awareness of candidates and is-
ing. Students of electoral behavior in- sues was exhaustively documented in
creasingly could not ignore him. the newly perfected survey research
The exchange at the heart of Downs' techniques of the era (Angus Campbell
model took place between party candi- et al. 1960; Almond and Sydney Verba
dates, offering policy platforms, and 1963).
voters, deciding how and whether to On the other hand, Downs' conclu-
vote. (The behavior of the party candi- sion about turnout seemed to be more
dates will be discussed in the next sec- problematic. While it did a great deal to
tion.) The voter begins by estimating a explain turnout levels that had seemed
party differential, the difference be- unaccountably low to normative politi-
tween expected utilities derived from cal scientists of the old school, a low
the policy choices of two parties' candi- turnout of 40 percent in a presidential
dates. A voter whose party differential election seems unaccountably high from
is non-zero can be counted on to vote if a Downsian perspective. Were the mil-
the costs of voting are zero. If the costs lions of candidates who turned out to
of voting are non-zero, then she dis- vote in the 1960 election a contradic-
counts that party differential by the tion of the Downsian model? The stub-
closeness of the election (which indi- born fact that some voters do vote led
cates the likelihood that her vote will to attempts to reformulate the Down-
make a difference to the outcome), and sian model. In 1968, William Riker and
votes if the discounted party differen- Peter Ordeshook included in their re-
tial is greater than the cost of voting. formulation a sense of citizen duty,
In a sizable electorate, as Downs (1957, which provided a private benefit for go-
p. 274) noted, the returns from vot- ing to the polls. This struck many as
ing are usually so low that even small "cheating," because it concluded that
costs may cause many voters to ab- the people who vote must be the ones
stain," a tendency which will be height- who like to vote. Downs (1957, p. 6)
ened as parties converge to a similar himself had pointed out the danger of
position. Not only may we expect mas- tautology in an explanation in which in-
sive abstention, the voters who do vote dividual goals were defined broadly
may well be uninformed. The cost of enough to make every action seem ra-
acquiring information about candi- tional: "To escape this pitfall, we focus
dates and policies may be great, and the our attention only upon the economic
value of that information must be dis- and political goals of each individual or
counted by the fact that the individual group in the model."
has little impact on the final outcome A large number of empirical studies
(p. 258). Thus, the citizenry in general looked at particular implications of the
will be characterized by "rational igno- Downsian model. One of those was that
rance. individuals should respond to election
By associating rationality with absten- closeness. Aggregate studies showed
tion and ignorance, Downs raised the that turnout did increase in close elec-
interest or the ire of many in the pro- tions (Rebecca Morton 1991). At the
fession. But his conclusion about ra- same time, studies of survey data gener-
tional ignorance was quickly confirmed ally failed to find a link between the
by the expansion in the use of sophisti- voter's perception of election closeness
cated survey research which took place and the decision to vote.
Miller: Economics and Political Science 1177

Skepticism about the rationality of argument that explained what had pre-
voting in large elections was enhanced viously been puzzles: the use of selec-
by a largely parallel concern with other tive incentives in many political organi-
forms of political participation. The zations, the failure of some interests to
springboard for this discussion was the organize effectively, and skewed public
work of another economist, Mancur 01- policies.
son. And like Downs', Olson's work cre-
ated new anomalies to replace the old
B. Collective Action and Inaction
ones it explained. Just as citizens who
The assumption that public goals voted in large electorates were a puzzle
were sufficient to motivate the rational to the followers of Downs, citizens who
political action of individuals who voluntarily contributed to group goals
shared them was a commonplace in the were a puzzle to interest group re-
political science discipline. This as- searchers. Olson's work renewed aca-
sumption allowed many political scien- demic enthusiasm for research on inter-
tists to argue that good policies could est groups, which had previously
be derived from the bargaining and in- become a dry and sterile subfield in
teraction of all the interest groups in so- political science.
ciety-a position that defined the clas- Game theory provided the opportu-
sic pluralist perspective in political nity for theorists to sharpen and modify
science. Olson's analysis of the strategic prob-
But in 1965, Olson debunked this po- lems of collective action. The prisoners'
sition by arguing that the policy goals dilemma served as an initial game-
sought by interest groups constitute theoretic model of many sorts of politi-
public goods-free to those who choose cal participation, in which individual
not to contribute. Therefore, even in- pursuit of self-interest led to subopti-
terested citizens have an incentive to mal outcomes (Russell Hardin 1971).
free ride on the lobbying efforts of oth- The inefficient Nash equilibrium in the
ers with similar policy goals. As a result, prisoners' dilemma game became the
many shared interests will go unrepre- focus of concern, and the game itself
sented in society, and those interests became a theoretical construct that
that are effectively organized must in- could be shared by students of interna-
duce support by means of selective in- tional alliances, commons resource
centives unrelated to the supply of the utilization, and revolutionary action, as
public good. The pattern of interest well as interest group lobbying.
representation may be erratic, and the In 1976, Michael Taylor's Anarchy
policies that result from negotiation of and Cooperation placed both the pris-
those groups that do manage to become oners' dilemma model and the collec-
organized can not be assumed to have tive action problem in the contractarian
any especially desirable properties- political philosophy of Thomas Hobbes
conclusions that sharply contradicted ([1682] 1962), and pointed out that
classical political thought. other game theoretic models besides
Olson's book, The Logic of Collective the prisoners' dilemma offered insights
Action, became one of the half-dozen into particular collective action settings.
books by economists that have had the He offered the possibility that Hobbe-
greatest impact on the political science sian tyranny was not the only solution to
discipline. As in the case of Downs, the collective action problem. As the
Olson provided a simple and compelling analysis of repeated games proceeded
1178 Journal of Economic Literature, Vol. XXXV (September 1997)

in the discipline of economics, it re- her benefits and costs defined by the
vealed that noncoerced cooperative network of social relationships in which
strategies could support Nash equilibria she is engaged. For example, individu-
if the time horizon of the game were als engage in costly protest against nu-
long enough (David Kreps et al. 1982; clear power not as individuals at all, but
Kreps and Robert Wilson 1982). This because of the social obligations and re-
bolstered the argument that successful wards that come with being a member
collective action is possible, even with- of a closely knit group (Karl-Dieter Opp
out coercion by the state. 1986). Individual participation in the
Successful examples of the large-scale revolution in East Germany in 1989 is
collective action naturally received spe- closely associated with belonging to a
dial interest, attention, and analysis. network of friends who expected and
The civil rights movement, for example, supported this kind of activity (Opp, Pe-
is a political setting in which individual ter Voss, and Christiane Gern 1995, p.
contributions were risky and costly in 118).
the extreme-yet people participated in This more socialized view of rational
large numbers without economic incen- action, in which social rewards are the
tive or physical coercion. Dennis Chong "currency" of exchange, offers a more
(1991) argued that social rewards avail- complex and difficult modeling prob-
able to participants in successful social lem. However, as a more organic view
protest transform the underlying logic of society, it is satisfying to political sci-
into an "assurance"game, rather than a entists who are aware of the density and
prisoners' dilemma game. In an assur- valence of social relationships in many
ance game, there is no dominant strat- political, as opposed to market, settings.
egy to defect; rather citizens participate In a fascinating synthesis, the grow-
if others participate and defect only if ing understanding of group impact on
others defect. In such a game there is individual political behavior has been
an inefficient Nash equilibrium in applied to the Downsian problem of
which no one contributes, and another, voter turnout. Carole Uhlaner (1989)
efficient, Nash equilibrium in which all and Morton (1991) showed that voting
contribute together. From this perspec- is one form of political participation
tive, the problem of the social protest that groups can encourage by ameliorat-
organizer is not to supply selective in- ing costs and enhancing incentives.
centives, but to solve a coordination Their voter is a rational, but social,
problem. The goal of the organizer is to voter, who may vote because of costs
coordinate her followers' beliefs-creat- and benefits imposed by the social net-
ing common knowledge that everyone work in which she acts. They thereby
can confidently participate in a protest maintain the formal structure of the
because everyone knows that everyone Downsian model, while embedding it in
else will support the protest as well. a less atomistic view of society than
Chong's analysis of the civil rights economists usually adopt.
mnovement typified the approach of a Interest group activity is the interven-
growing number of political scientists ing variable that explains a continuing
who, wvhileusing rational actor models, puzzle in election studies: in the aggre-
embed the rational actor in an inher- gate, turnout responds to election close-
ently social universe, rather than the ness, despite the fact that most individ-
atomistic universe of most economics. ual voters are unaware and unaffected
This means that the rational actor finds by the closeness of the election. This
Miller: Economics and Political Science 1179

results from interest groups spending tal subjects with an opportunity to con-
more resources to get members to the tribute to public goods, in a setting in
polls in close elections; the voters re- which contribution was a dominated
spond even though they themselves are strategy, they showed that voluntary
aware only of their interest group blan- contributions were in fact significant.
dishments, rather than the closeness of They also showed that the simple ability
the election (Uhlaner 1993). to communicate doubled contribution
This concern with groups is a direct rates to more than 70 percent. This
violation of Downs's modeling strategy. early study was followed by much-
Downs(1957, p. 8) admitted: quoted and controversial studies by
adjustment in primary groups is far more cru-
Gerald Marwell and Ruth Ames (1979),
cial to every individual than more remote which allowed variable contributions in
considerations of economic or political wel- a one-shot experiment, and in which
fare. Nevertheless, we must assume men ori- more than 50 percent of the resources
ent their behavior chiefly toward the latter in available to subjects were contributed.
our world; otherwise all analysis of either
economics or politics turns into a mere ad-
These studies caught the attention of
junct of primary-groupsociology. the new generation of economic experi-
mentalists who had been providing for
These political scientists believe not only the first time rigorous laboratory data
that group influences are an unavoidable about the effects of institutional rules
aspect of the study of key political deci- on market behavior. (An early influen-
sions, but that "primary-groupsociology" tial piece was Charles Plott and Vernon
is itself amenable to rational choice mod- Smith 1978.) The economists were
eling. skeptical of Marwell and Ames' results,
C. Public Goods and the Commons:A flying in the face of received theory as
Challenge to Economic Theory? they did. In fact, they "felt sure that the
study by sociologists must be flawed.
The link between collective action, Theory could not be that wrong, could
group goals, and public goods forged by it?" (Ledyard 1995, p. 134). Perhaps
Olson directed much political attention persistent, problematic public good
toward the economic analysis of public contributions in the laboratory were
goods. Paul Samuelson's (1954) analysis out-of-equilibrium phenomena that
was carefully studied by political scien- would disappear with repetition, via
tists with a bent toward rigorous analy- normal Nash adjustments.
sis. Samuelson's arguments were proved In a powerful research initiative,
in John Ledyard and John Roberts economists Mark Isaac, Kenneth
(1974). Yet no one had any rigorous evi- McCue, and Plott (1985) allowed sub-
dence whether the testable implications jects in their public goods experiments
of the model were true; furthermore, to repeat the public goods contribution
the persistent political phenomena of decision, over multiple periods. They
voting and contributing to interest did in fact find that levels of contribu-
groups raised questions about the the- tion dropped off with repetition. How-
ory of voluntary contributions to pub- ever, Isaac, James Walker, and Susan
lic goods. Thomas (1984), found that this drop-off
Some of the first careful laboratory occurred only when individual contribu-
experiments were done by nonecono- tions had a low marginal impact on the
mists (Robyn Dawes, J. McTavish, and public good; when individual contribu-
H. Shaklee 1977). Providing experimen- tions had a high marginal impact, the
1180 Journal of Economic Literature, Vol. XXXV (September 1997)

contribution level remained rather high ceptance and status as defined by a


with repetition, even in large group group of relevant others (Opp, Voss,
size. In later studies, Isaac and Walker and Gern 1995, pp. 31-40). Social goals
(1988, 1991) confirmed that communi- do not make people any less goal-ori-
cation has a strong effect on contribu- ented; they do not necessarily make
tions, increasing the contribution rate people any less selfish. A desire for ac-
above 80 percent, even when communi- ceptance within a group does not moti-
cation itself is costly. vate voting, contributing, or protesting
These careful economic experiments unless the group has defined those ac-
have led to attempts to reformulate ba- tions as valued prerequisites for accep-
sic aspects of rational choice, in ways tance. From the standpoint of social ra-
that could have an impact on economics tionality, the context of interpersonal
itself. Perhaps the most radical refor- and group relationships defines the
mulation is characterized by the fasci- means by which rational individuals can
nating work of economist Robert Frank further their basic goals.
(1987), who draws on the biological use Thus, most protesters in the civil
of repeated game theory (including R. rights movement did not decide to par-
L. Trivers 1971; John Maynard Smith ticipate as individuals, but as members
1982) to include the possibility of ge- of local churches with highly structured
netically programmed altruism or coop- systems of social incentives that linked
eration. Natural selection may reward good standing in the group with partici-
social individuals who are genetically pation in the civil rights movement.
committed to cooperate with other co- And a common denominator of the re-
operating group members, or to retali- search on voting, interest groups, and
ate when cheated. public goods is that much of the vari-
On the other hand, Dawes, Alphons ation in individual behavior has to do
van de Kragt, and John Orbell (1990) with how an individual's relevant group
found that the best explanation for pub- has defined the social costs and incen-
lic goods participation is neither gener- tives associated with those acts of politi-
alized altruism-which would not ex- cal participation.
plain decreasing rates of participation In a fascinating parallel with the pub-
in repeated games-nor communica- lic good experiments, Elinor Ostrom
tion. Rather they argued that high con- (1990, 1991) uses dozens of empirical
tribution rates represent a socialized, studies of commons such as grazing
contingent cooperative solution explic- meadows or underground aquifers. She
itly seeking efficiency-in other words, argues strongly that a coercive, compel-
an attempt to reach an implicit con- ling hierarchy is not necessary for the
tract. Communication, then, is crucial resolution of commons dilemmas. She
not because it triggers a guilty con- provides evidence of a much more com-
science, but because it is the method by plex world than one in which individu-
which members of a group signal con- als faced with a non-excludible resource
tractarian solutions to their shared di- inevitably rush to an inefficient Nash
lemma, and resolve coordination prob- equilibrium. As in the interest group lit-
lems. erature, she shows that groups of peo-
Without assuming that people are ge- ple can often commit themselves to
netically programmed to altruism, it is complicated allocation, monitoring, and
possible to assume that people are con- sanctioning rules-an approach she
cerned (among other things) with ac- identifies with the new institutionalism.
Miller: Economics and Political Science 1181

And she emphasizes that these institu- realm of politics threaten the validity of
tional solutions are self-generated, economic theory overall.
rather than imposed and enforced by a Thus, the economist Robert Sugden
Hobbesian Leviathan. argues that anomalous political behavior
As in the work of Opp and Uhlaner having to do with contributions to col-
on protest movements and interest lective action and other public goods
groups, Ostrom's work on commons di- forces a dilemma on the discipline. As
lemmas is essentially social; success or he argues, economists have assumed
disaster in the commons cannot be pre- that each individual chooses a public
dicted or described by reference to in- good contribution that maximizes her
dividual decisions alone. Rather, out- utility, given her beliefs about levels of
comes are contingent on complex contribution by other individuals. Sug-
group-level arrangements, norms, and den (1985) investigates what the levels
expectations. The mediation of groups of contributions imply about individu-
distinguishes how individuals partici- als' beliefs about each others' behavior.
pate in political settings from the way He shows that, in order to rationalize
that they participate in markets. observed high levels of voluntary contri-
butions, the beliefs that individuals
D. Confronting Political Participation: must hold in order are mutually incon-
Common Knowledge sistent. For example, each must believe
It is not an exaggeration to say that that others contribute more when she
economics transformed the discipline of herself contributes more-a belief that
political science by proposing to explain is inconsistent with her own behavior,
fundamental political acts-voting, join- and which may easily be proved wrong.
ing, rebelling, contributing-as the acts As Sugden (1985, p. 123) says,
of self-interested, rational actors. How- It would hardly be satisfactory to claim to ex-
ever, it is also safe to say that the evi- plain voluntary contributions to public goods
dence gathered in the confrontation of by assuming individuals hold systematically
economic models with political reality false beliefs about one another's behavior. Af-
has the potential for transforming eco- ter all, if someone really wants to know
whether other people would match an in-
nomics as well. As Ledyard (1995, pp. crease in his own contribution, it is easy
112-13) says in his review of public enough to put the belief to the test.
goods experiments,
Sugden claims that the study of poli-
Are people cooperative or selfish? Do they
behave differently when confronting public
tical behavior forces rational choice
goods decisions than when making private modelers to face a dilemma: actors are
goods decisions? . . . If we are successful as either not maximizing utility, or else
social scientists, we should be able to model they are not holding consistent beliefs
behavior in the same way, whether there are about each others' rational behavior. He
private or public goods and whether there are
markets or committees.
himself inclines toward the former; if
we are to have a satisfactory theory of
While much of the attraction for eco- public good contributions, he says, "we
nomic modeling in political science should have to abandon the assumption
comes from the ability to explain both of utility-maximising behavior" (1985,
market and political phenomena from a p. 118).
single, parsimonious set of assumptions, On the other hand, an increasing
economic imperialism carries its own number of economists who have
dangers: persistent anomalies in the thought seriously about political behav-
1182 Journal of Economic Literature, Vol. XXXV (September 1997)

ior prefer to sacrifice consistency in be- sumptions about motivation. A public


liefs in order to save utility maximiza- perception that some people are com-
tion. If experimental subjects act in a mitted cooperators is efficient, even if
variety of ways that social scientists can- it is simply a political myth. Indeed, the
not explain, then subjects themselves creation and nurturing of the belief in
may be uncertain about the motivations the possibility of cooperation would
and rationality of other subjects. But seem to be a vital role played by politi-
the common knowledge assumption in cal organizers in virtually all collective
game theory normally assumes not only action settings; Kreps et al. show how
that individuals are rational, but that this manipulation of beliefs can support
everyone is mutually confident of every- higher levels of political participation
one else's rationality, to the nth degree. by self-interested actors who would oth-
For example, in a laboratory experi- erwise have every incentive to free-ride.
ment on free riding in contribution Considerations such as these moti-
threshold games, anomalous levels of vated Richard McKelvey and Palfrey to
individual behavior can be explained by conduct experiments on the "centipede
optimistic misapprehensions about game." In this game, developed by
other players' willingness to contribute Rosenthal (1981), individuals are given
(Thomas Palfrey and Howard Rosenthal alternating opportunities to claim a
1991, p. 241). These inaccurate beliefs growing pot. It is designed in such a
are surprisingly inflexible over time. In way that the unique Nash equilibrium is
Palfrey and Rosenthal's model, a cor- for the first person to claim the entire
rect understanding of political partici- pot. This outcome virtually never oc-
pation does not require a relaxation of curs; instead, individuals defer repeat-
the rationality assumption directly, but edly as the pot grows.
rather of players' beliefs about others' Contemplating the centipede game
rationality. caused Robert Aumann to think seri-
Relaxing the common knowledge as- ously about irrationality. As he says, if
sumption, it seems, yields significant rationality leads inevitably to the Nash
leverage over political problems. For equilibrium of this game, then many
example, Kreps et al. (1982) examine a people "would rather be irrational."
finitely repeated prisoners' dilemma Presenting this paper at a conference
game in which individuals may be self- on "Economic Theories of Politics," Au-
interested, but have incomplete infor- mann proposed to maintain the basic ra-
mation about others' motivations. They tionality assumption, but to abandon
find that rational actors who each be- common knowledge. "We will find that
lieve the other may be a committed co- a very very small breakdown, not in ra-
operator may play along with this belief tionality but only in the commonality of
by acting like a cooperator them- the knowledge of rationality, is enough
selves-even when they themselves are to justify the kind of behavior that most
motivated solely by economic self-inter- of us would consider intuitively 'ra-
est. Thus, individuals efficiently post- tional"' (Aumann 1988, p. 7), but which
pone the otherwise immediate unravel- falls outside the received definition of
ing of cooperative play in finitely rationality.
repeated prisoners' dilemmas. Once Experiments by McKelvey and Pal-
again, modifying the common knowl- frey on the centipede game support the
edge assumption makes it unnecessary widespread belief the Nash equilibrium
to make drastic modifications in the as- is not predictive. Their research is re-
Miller: Economics and Political Science 1183

vealing because McKelvey and Palfrey petition argument. He drew on the


are able to show that mutual deference work of Harold Hotelling (1929), who
can be explained as resulting from ra- had shown that two political parties
tional individuals who have small competing for the votes of citizens with
amounts of uncertainty about the ra- single-peaked preferences who were
tionality of their partners in play. evenly spaced along a one-dimensional
The results are used by Kreps in his policy space will converge on the me-
reassessment of game theory and eco- dian voter's ideal point. Arthur Smithies
nomics. Speaking of the centipede (1941) had added the possibility of
game, he has observed that "a small alienation by extreme voters. Duncan
amount of uncertainty about what each Black (1948) explored the convexity
player knows about the others can be requirements for convergence in a
very destructive of easy conclusions ar- single dimension. Downs (1957, p. 122)
rived at by assuming that no such un- showed that uneven distributions of po-
certainty exists" (Kreps 1990, p. 82; em- tentially alienated or indifferent voters
phasis added). could result in multiple parties taking
If understanding political participa- up positions favored by large clumps of
tion forces us to reconsider what is es- voters. This led him to conclude (on p.
sential in our conception of rationality, 114) that "a large measure of ideologi-
this reassessment could clearly have an cal consensus" is necessary for stable
impact on how economic participation and effective two-party democracy.
in markets is modeled, as well. For in- Downs' analysis of political party
stance, as basic an economic institution equilibrium was made against the back-
as money is dependent on the common drop of concerns with majority rule in-
knowledge assumption that is increas- stability raised by his dissertation advi-
ingly in question-money retains its sor, Kenneth Arrow. Arrow (1963) was
value as long as we are confident others concerned with the normative princi-
will be confident that everyone will re- ples which a social choice function
gard it as valuable. Norman Schofield ought to satisfy, and found that several
(1994, p. 7) argues that this question of obvious and basic principles were logi-
common knowledge "is at the heart of cally inconsistent. As Downs (1957, p.
an understanding of economic as well as 8) said, his work on political equilib-
political behavior, and indeed all collec- rium required a "defense" against Ar-
tive action." Relaxing the common row's line of attack. His defense took
knowledge assumption may well have two forms: that Arrow's criticism "is not
fundamental implications for our under- always relevant," and "even when it is
standing of individual participation in relevant, its impact is often limited to
markets, as well as in elections, commit- much narrower areas of choice than one
tees, and interest groups. might suppose" (Downs 1957, pp. 18-
19).
II. Aggregating Preferences This "evasion" of the Arrow problem
was based on Downs' notion of passion-
The attraction of Downs' argument ate majorities. He claimed that most
was not only that he made assertions people agree not only on which issues
about the behavior of individuals, he are most important, but alsto-on what to
also linked these assertions powerfully do about those issues; Downs argued
to the nature of policy outcomes in a (1957, pp. 667-68) that this makes ma-
democracy by means of his party com- jority rule instability less likely, and
1184 Journal of Economic Literature, Vol. XXXV (September 1997)

limits the scope of the cycles. But how More recently, Randall Calvert
satisfactory was his "evasion" of the Ar- (1985) argued that the policy motiva-
row problem?, How likely is it that po- tion of candidates does not by itself de-
litical preferences aggregate neatly to a stroy the convergence results. It is only
determinate equilibrium? Like Downs' when the policy orientation combines
work on turnout and voting, the hy- with candidates' probabilistic beliefs
pothesis about party convergence and about winning that candidates fail to
political equilibrium became the major converge; even then, the result is not a
focus of an increasing amount of work knife-edge result, but one in which
in political science over the next several small departures from perfect informa-
decades. tion and complete commitment to win-
ning lead to small departures from con-
A. Competition and Convergence in a
vergence.
Single Dimension
Discussion of candidate policy prefer-
Various political scientists and econo- ences helped to bring about a long and
mists carefully examined the sensitivity useful debate about legislators as agents
of the party convergence result by of voters; from this perspective, legisla-
modifying the axioms having to do with tors voting on the basis of their own
the nature of voter utility in the policy principles and ideological beliefs repre-
space and the motivations of party can- sents a kind of "shirking," vis-'a-vis the
didates Indeed, many analytical politi- constituencies they are supposed to be
cal scientists have "cut their teeth" by representing. Economists once again
publishing an early article on political contributed significantly to the initia-
party competition and convergence; this tion of this debate, especially in James
kept the party competition literature Kau and Paul Rubin (1979) and Sam
fresh, as new modeling techniques and Peltzman (1984).
new concepts were incorporated into Alberto Alesina (1988) argued that
the literature. party convergence depends on party
The convergence result proved to be commitment to campaign platforms; in
surprisingly robust. For instance, Otto the absence of this commitment, party
Davis, Melvin Hinich, and Ordeshook campaign statements are ignored and
(1970) showed that candidates will con- there is no convergence at all. Jeffrey
verge even when most of the voters are Banks (1990) assumes that candidates
lumped in two divergent ideological can either state or hide their true policy
camps. preferences, but that implementing a
Donald Wittman (1973) reintroduced policy different from the one an-
the policy-motivated candidates which nounced brings costs for the candidate.
Downs had carefully eliminated from With appropriate cost structures, mod-
the discussion and found that the con- erate candidates will be silent about
vergence could be weakened as a result. their policy preferences, while extreme
The ability of legislators to impose their candidates will take a position. Voters
own preferences seems to be a function may then have to choose between two
of the ability of voters to monitor and moderate candidates who are com-
sanction candidates, which seems to de- pletely ambiguous about their planned
pend in turn on voter awareness. With policies.
less voter awareness, parties could di- Overall, then, voting in a single di-
verge significantly in their policy mension seems to result in basically
choices. well behaved and centrist outcomes,
Miller: Economics and Political Science 1185

with some degree of slippage when can- consistent with 19th century liberal
didates have their own preferences, are philosophy.
unsure of the relationship between The challenge for empirical political
their own policy positions and the prob- science was to understand the positive
ability of election, and perceive an ad- implications of the majority rule insta-
vantage to cloaking their own policy bility results. This was not a trivial task.
pronouncements in ambiguity. Gordon Tullock (1981) posed the ques-
tion sharply by asking, "Why So Much
B. Instability in Multiple Dimensions
Stability?" While theoreticians were re-
The strong convergence results in vealing the pervasiveness of majority
one dimension have proven rather ro- rule instability, casual observation of
bust; equally robust have been the in- policy decisions in democracies re-
stability results in multiple policy di- vealed a pattern that looked much more
mensions. Downs' early hope that like Downsian stability than Arrowian
Arrow problems could be "avoided" instability. Policies persisted over de-
proved to be overly optimistic. cades, even as executives and legisla-
Plott (1967) showed that extreme tures changed party control repeatedly.
symmetry conditions were required for Experiments in two-dimensional policy
a majority rule equilibrium in two-di- space revealed seemingly stable, cen-
mensional space. This showed that the trist outcomes, rather than a chaotic ex-
Arrow impossibility result had more plosion of majority rule choices (Morris
profound implications for majority rule Fiorina and Plott 1978). Why didn't leg-
voting than might have been suspected islatures, natural or in the laboratory,
by those reading Downs. Over the next reveal the mutability predicted by the-
decade, an increasing number of politi- ory? By formulating the question so
cal scientists helped to expose these im- neatly, Tullock's article became the
plications. starting point for an entire research
McKelvey (1976) showed that, in the agenda for the political science disci-
absence of a majority rule equilibrium, pline, many of them framing their work
cycles could include virtually any point as an explicit answer to Tullock's ques-
in the policy space. An agenda could tion.
be found that induced shifting majority
C. Why So Much Stability?
coalitions to approve any possible out-
come. It is safe to say that, from this At least two classes of answers to Tul-
time on, political science as a discipline lock's question emerged. One class
faced no more pressing challenge than sought an explanation for democratic
to interpret and incorporate these pro- stability in the analysis of majority rule
found instability results. In Liberalism itself; that is, it sought a solution con-
Against Populism (1982), Riker articu- cept that would predict a small, stable
lated the normative challenge presented subset of policy alternatives, preferably
by fundamental instability, in a way "centrally" located, even in the absence
that was accessible for the entire politi- of a core.
cal science discipline. His argument Tullock (1967) himself initiated this
was that majority rule democracy is search by an early hypothesis that
fundamentally flawed by its own in- majority rule cycling would tend to
decisiveness, and that therefore the remain near the point where median
scope of majority rule decision making lines intersect; a median line divides a
should be limited in a way that is policy space in such a way that no more
1186 Journal of Economic Literature, Vol. XXXV (September 1997)

than half of the voters' ideal points D. Institutional Effects on Preference


lie on either side of it. These medians Aggregation
are attractive, so that as the median in-
tersections approach a common point, An alternative answer to Tullock's
the dispersion in majority rule out- question about stability is that minimal
comes should decrease. When all the majority rule is indeed unstable, and
medians intersect at a common point, that is why most democracies do not use
they constitute a core. The "yolk" was simple majority rule. Rather, they
defined as the circle of minimum radius evolve a complex set of institutional
that intersects all the median lines; rules that constrain the ability of simple
the size of the yolk is thus a measure majority coalitions to undermine the
of potential majority rule instability. status quo. The correct research agenda
On the other hand, the yolk seemed for political science, according to this
to do a poor job of predicting out- subgroup, is to understand how those
comes in some majority rule labora- institutional rules create stability, and
tory experiments (Cheryl Eavey 1991, just as important, how those institu-
Fig. 7). tional rules came into being by the
The usefulness of these unstable but choices of rational actors at a prior,
constrained solution concepts in an- constitutional, decision stage.
swering Tullock's question is unclear The most influential early proponent
at this point. A confounding factor is of this perspective was Kenneth Shepsle
that the experimental evidence for ap- (1979), whose basic insight was that
parent democratic stability in the ab- limitations on agenda control (for in-
sence of a core is in two-dimensional stance by legislative committees) could
policy space. However, the degree of create stable outcomes by limiting the
instability has been shown to be linked logrolling which is necessary to under-
to the number of dimensions in the pol- mine some outcomes in multi-dimen-
icy space. For a given number of voters sional policy space. Shepsle and Wein-
n and a given decisive coalition size q, gast (1987) showed that the power of
then there must always be a core if the committees could derive from institu-
number of policy dimensions is less tional procedures that gave committee
than w = q/(n - q) (Joseph Greenberg members critical membership on con-
1979). For any simple majority rule, ference committees, which benefitted
then, the largest number of dimensions from no-amendment rules vis-ai-vis their
that guarantees a core is one. More re- respective houses. Committee agenda
cently, Schofield has proven that when power was shown to have the potential
the dimensionality is w + 1, there will to create stable outcomes, even in the
not be a core, but the cycle will be presence of logrolling across committee
constrained at least within the Pareto jurisdictions (C. Miller and Thomas
set. For w + 2 and more dimen- Hammond 1990), a conclusion which
sions, the cycling will fill the policy was found to hold in the experimental
space (Schofield 1986; McKelvey and laboratory (Eavey and G. Miller 1995).
Schofield 1986). Thus, the well-behaved Some of the rules that were found to
nature of simple majority rule in labora- limit majority rule instability are im-
tory experiments with two dimensions posed by the U.S. Constitution. Bicam-
may have little to say about democratic eralism, especially in combination with
stability in a more complex policy the executive veto, prevents most sim-
space. ple majority coalitions from enacting
Miller: Economics and Political Science 1187

their preferences, and thus has a stabi- multilateral bargaining, or coalition for-
lizing impact on outcomes (Hammond mation, using the same noncooperative
and G. Miller 1987). This theoretical game theory.
possibility has been supported by con- An influential and thoughtful use of
trolled laboratory experiments (G. noncooperative game theory along these
Miller, Hammond, and Charles Kile lines is by David Baron and John Fere-
1995). The connection between bicam- john (1989). They are specifically con-
eralism and policy stability is explored cerned with multilateral, majority rule
further in Weingast (1991). The repre- bargaining where (unlike bilateral bar-
sentation of slave states in the Senate in gaining) no individual has veto power.
the early Republic guaranteed that no In social choice theory, "the absence of
antislavery legislation could succeed, an equilibrium is a consequence of the
even if a majority of the population or a opportunity to pit simultaneously and
majority of the House were in favor. costlessly any alternative against every
Thus, bicameralism was a fundamental other alternative" (1989, p. 1181). They
means of protecting one class of minor- consider, in contrast, the legislature in
ity property owners. The Civil War which alternatives are pitted against
came when changes in the number of each other as a result of a fixed process
slave and free states made outcomes of proposal making, amending, and vot-
that had previously been in the bicam- ing. In particular, they assume a legisla-
eral core vulnerable to upset by a new ture with a minimum of differentiation,
antislavery coalition. where every legislator wishes to be
The development of noncooperative recognized, but the recognition rule
game theory was influential in that it in place is random. Proposals may
gave political scientists another set of either be amended (open rule) or not
tools to understand sources of stability (closed rule). With a closed rule and in-
in democratic processes. In noncoop- finite sessions, any distribution can be
erative game theory, a typical problem supported as a subgame perfect equilib-
is not the absence of equilibria, but the rium, but the result depends on com-
myriad outcomes that may constitute plex, and potentially fragile, punish-
Nash equilibria under a particular game ment strategies. They therefore show
form. The noncooperative game form which distributions can can be sup-
thus is a way of examining procedural ported as stationary equilibria, showing
rules-such as parliamentary rules for that benefits are distributed to a mini-
recognizing members' motions-that mal winning coalition. An open rule re-
provide closure to the structure. In situ- duces the influence of the proposer and
ations in which there may be an empty results in more egalitarian distributions
core, analyzed from the perspective of in equilibrium. Here again, the appear-
cooperative game theory, institutional ance of particular stable outcomes is
procedures may well result in numerous viewed as a consequence of the particu-
noncooperative Nash equilibria. lar agenda rules imposed in a majority
While bargaining had been for some rule body.
time studied as an example of coopera-
E. Institutions and the Uncovered Set
tive game theory, Ariel Rubinstein
(1982) initiated the study of noncoop- The impact of institutional rules on
erative game theoretic models of bar- democratic processes poses several
gaining. From here, it was a natural but problems for political scientists. One
important step to initiate the study of problem is normative: procedural rules
1188 Journal of Economic Literature, Vol. XXXV (September 1997)

for setting the agenda are evidently not tial for indeterminacy in market econo-
neutral tools for expediting decision mies as well as political economies?
making, but potentially powerful weap- One of the early insights about this
ons for biasing outcomes one way or the indeterminacy in economics was due to
other. Are there any limits to the malle- Leonid Hurwicz (1973), who showed
ability of majority rule? that the Arrow Theorem implies that,
A concept called the "uncovered set," under any nondictatorial preference ag-
defined by Nicholas Miller (1980), has gregation mechanism-voting or mar-
been used to explore the limits of ket-individuals must have an incentive
democratic decision outcomes under al- to misrepresent their preferences. Us-
ternative institutional rules. An out- ing Edgeworth boxes, Hurwicz showed
come y is in the uncovered set if, for how an individual could misrepresent
any other outcome z in the feasible set, her indifference curves and induce a
either y defeats z, or y defeats some better market outcome than would oc-
third alternative x which defeats z. cur with the truly revealed outcomes.
Shepsle and Weingast (1984) have Equivalently, one actor in an exchange
shown that, while naive voters may be economy can destroy some of her initial
led to any possible outcome by the cor- endowment and end up with a better
rect agenda, sophisticated voters will market outcome. Zvi Safra (1983)
never be led outside of the uncovered showed that there are many possibilities
set. for such preference manipulation in
McKelvey (1986) showed that two market economies. These paradoxes
competing candidates would be forced unite, rather than differentiate, the
to choose policies inside the uncovered world of politics and markets.
set. Furthermore, coalitions forming in When we allow for market-like exit,
a committee setting, and sophisticated majority rule instability can manifest it-
voting in a legislature, would also lead self even in situations in which there is
to outcomes in the uncovered set. Thus, a majority rule core. Paul Johnson
the uncovered set provides what seems (1990) identifies a concept he calls "un-
to be a robust set of limits on decision raveling," which occurs when individu-
making under a set of democratic insti- als can choose to exit a majority rule or-
tutions. ganization. The exit of individuals who
are sufficiently dissatisfied with the ma-
F. Confronting Political Instability
jority rule outcome can shift the median
One of Arrow's contributions was to outcome further from the preferred
classify markets and political systems as choices of the exiters, generating a new
special cases of a more general category set of exiters in a downward member-
called "social choice functions." By im- ship spiral. Johnson studies this phe-
plication, economics could not be satis- nomenon in the American Federation of
fied with simply studying markets, with- Labor. The majority rule equilibrium
out being relegated to the analysis of a for the entire organization can be unsta-
"special case." As economists and politi- ble as individuals can vote with their
cal scientists confronted the stubborn feet as well as their ballots. It is the
instability results surrounding majority market-like "exit" mechanism, rather
rule systems, they were faced with the than voting alone, which creates the po-
prospect that perhaps instability was tential for instability.
the more fundamental fact about social Similarly, analyzing coalitions in pri-
life. Is there a similar underlying poten- vate markets, with the theory of the
Miller: Economics and Political Science 1189

core, has revealed situations which gen- However, through the middle of the
erate instability that seems almost po- seventies, the informational aspects of
litical in nature (Lester Telser 1994). Downs' model remained undeveloped.
When subcoalitions can do better in The economic models that influenced
submarkets than in the whole market, political science were those that viewed
there is an incentive to break away from the world, with Arrow, as involving the
the larger market. This results in mar- aggregation of conflicting prefer-
kets with no core, and a resulting insta- ences-implicitly in a world of perfect
bility in the market as a whole. As in information.
the world of politics, the outcome de- In the mid-seventies, the aggregation
pends on a musical-chairs process of co- of dispersed information began to be of
alition-formation, with arbitrary stop- central concern in economic theory,
ping places. with the publication of seminal pieces
As Schofield (1994, p. 5) has written, by George Akerlof (1970), Michael
"recent theoretical developments in the Spence (1974), and Arrow himself
social sciences, particularly in econom- (1974). These theoretical developments
ics and political science, can best be un- allowed political scientists to make sys-
derstood as a confrontation between tematic progress toward understanding
models that focus on equilibrium or informational aggregation in the world
predictability on one side and those that of politics.
emphasize chaos or indeterminacy on
A. Decentralized Information in a
the other." As political economists
Hierarchy
learned better how to conceive of dis-
equilibrium, they discovered the poten- One of the early settings for thinking
tial for disequilibrium in markets as about information aggregation was hier-
well as politics. archies. The emerging literature on the
economics of agency came to guide
III. Aggregating Information much of the research on regulation and
bureaucratic oversight.
In his Economic Theory, Downs Voters, like shareholders of a large
(1957, p. 198) introduced information firm, face the difficult task of monitor-
costs into his analysis in order to pre- ing the activities of large hierarchies
vent it "from being totally unrealistic." staffed by people who have information
Downs explained that in a world of and expertise that is unavailable to the
costly information, rational citizens will average voter or shareholder. Because
spend more time getting informed the effort of monitoring managers is
about their own private purchases than costly and supplies a public good for
they will getting informed about public shareholders, large numbers of share-
policies, for which their efforts will holders face a collective action problem
have little effect. When they do vote, not unlike that described by Olson. Just
they may well use informational short as Adolf Berle and Gardiner Means
cuts including opinion leaders and party (1933) concluded that shareholder over-
labels to economize on the cost of gath- sight of managers was ineffectual, stu-
ering information. Here again, Downs dents of public administration commonly
irritated or confounded traditional po- concluded that legislative oversight was
litical scientists who felt that the citi- limited in its ability to impose demo-
zen's duty to become informed was axi- cratic accountability on public bureau-
omatic. crats.
1190 Journal of Economic Literature, Vol. XXXV (September 1997)

This concern with the ineffectiveness Much of this literature remains un-
of oversight was in fact heightened by read and unknown by political scien-
early economic models of public bu- tists. However, one of the early exposi-
reaucracy. William Niskanen (1971) tors of this literature for the political
made the simple assumption that bu- science discipline was Weingast. In a
reau chiefs seek to maximize the bud- study of the SEC (1984) and the FTC
gets made available to them by legisla- (Weingast and Mark Moran 1983), We-
tures. Budgets were, after all, both the ingast argued that the absence of visible
symbol and measure of bureaucratic and continuous legislative oversight
success, as well as the source of bureau- efforts does not imply legislative help-
cratic comfort and ease. Using its mo- lessness vis-'a-vis their bureaucratic
nopoly position, a bureau will attain a charges. On the contrary, it could sim-
budget which oversupplies the bureau's ply mean that the oversight committee
output to the point at which consumer has designed a set of incentives and an
surplus is matched by the inefficiency information flow that adequately shapes
of oversupply. bureaucratic behavior without constant
The mathematical model was rigorous monitoring.
and seemed to provide an explanation In this line, Mathew McCubbins and
for what were necessarily the most star- Thomas Schwartz (1984) made an oft-
tling facts about bureaucracies during cited distinction between police patrol
the decade before Niskanen's book: the and fire alarms, claiming that Congress
rapid expansion in bureaucratic budgets could, like the fire department, wait to
throughout the sixties and seventies, hear from its constituents about con-
and the increasing reliance on powerful cerns regarding bureaucrats, rather
managerial policy makers like Robert than undergoing the expense of patrol-
McNamara, J. Edgar Hoover, and Hy- ling for them. For public agencies, as
man Rickover. for business firms, contractual solutions
However, financial theorists starting offered the potential for subtle shaping
with Michael Jensen and William Meck- of agent behavior, even when the prin-
ling (1976) and Bengt Holmstrom cipal is at an informational disadvan-
(1979) addressed the contractual issues tage.
concerned with shaping the behavior of These articles generated an immedi-
subordinates whose actions could not be ate, sharp, and productive debate
directly observed. In the absence of risk within the political science and eco-
aversion and production interdepend- nomics discipline about the determi-
ence, it was shown that subordinates nants of regulatory agency perfor-
could be perfectly shaped by incentive mance. Terry Moe (1988) argued that
contracts. When subordinates are risk- the regulatory agencies like the Na-
averse, subordinate behavior can still be tional Labor Relations Board are indeed
shaped, but only by asking them to bear responsive, but to the Executive rather
risk that may be more efficiently borne than to Congress. On the other hand,
by the principal. While there is a trade- McCubbins, Roger Noll, and Weingast
off between risk-bearing and incentive (1987) examined administrative proce-
effects, the point of immediate interest dures as a mechanism by which Con-
is that contractual incentive systems al- gress could shape future decisions of
low principals to shape the behavior of regulators-thereby bringing the Ad-
agents at a distance, without costly, ministrative Procedures Act out of the
constant monitoring. dusty obscurity to which it had been
Miller: Economics and Political Science 1191

relegated by the political science disci- sively from the literature on agency the-
pline's reaction to legalism in the six- ory to analyze The Logic of Delegation
ties. (1991) as it applies to the legislative ap-
Hammond and Jeffrey Hill (1993) propriations process. They found that,
used insights from the new political despite popular opinions to the con-
economy to defend the traditional posi- trary, national parties exert a strong and
tion of public administration that regu- persistent influence on budgeting, by
latory agencies have a great deal of shaping the delegated decisions of con-
autonomy. They argued that legislative gressional committees, bureaus, and
oversight of bureaucrats was much less other budgetary actors.
constraining in the presence of majority Here, as in other cases, the appear-
rule instability. Different majority coali- ance of unaccountability was demon-
tions might prefer some alternative to strated to be at least in part a decep-
any status quo; as long as a bureaucrat tion; in the world of democratic politics,
chooses wisely, a majority of the legisla- mechanisms have evolved to forge hid-
ture could easily prefer a bureaucrat's den links of accountability that were by
noncompliance to the original legisla- and large unsuspected in the discipline
tive mandate. before investigation in terms of princi-
The debate about the efficacy of leg- pal/agency theory.
islative oversight transformed the pre-
B. Retrospective Voting as Information
viously stodgy literature on regulatory
Aggregation
agencies overnight into one of the glam-
our fields in the political science disci- Principal-agency theory, as deployed
pline. And this debate made possible, by political scientists, led to an increas-
by analogy, a vigorous re-examination of ingly sophisticated understanding of the
the larger issue of accountability in mechanisms of accountability among in-
politics. While the rational choice mod- stitutions of government. If relatively
els of the seventies had focused on es- uninformed legislators can shape the ac-
sentially symmetrical voting processes, tions of informationally advantaged bu-
in which every actor had equal voting reaucrats, then perhaps the same can be
power, agency theory was used to exam- said of the even more uninformed vot-
ine those asymmetric relationships in ers vis-a-vis legislators. To what extent
which one political actor was charged are voters capable of disciplining the
with acting in the interest of another- legislative process?
legislators representing voters, legisla- At the same time that agency theory
tive committees acting for the legisla- confronted political scientists with
ture, party leaders acting for the questions about information and ac-
following. countability in regulation, other theo-
As but one example, consider the re- rists were taking Downs' notions about
lationship between political parties and costly information seriously in the
legislatures. The common perception is realm of voting models. Downs' analysis
that political parties in the U.S. are of "rational ignorance" had garnered a
ghosts of their former selves, weakened great deal of empirical support. Voters
by party primaries, the mass media, and seemed to be little aware of candidates'
independent fund-raising by legisla- names, much less the policy positions
tors-and incapable of enacting a co- that they took in the course of cam-
herent party platform. Roderick Kiewiet paigns (Donald Kinder and David Sears
and Mathew McCubbins drew exten- 1985). Yet many models of voting be-
1192 Journal of Economic Literature, Vol. XXXV (September 1997)

havior started with the simplifying as- C. Confronting Information


sumption that voters are perfectly Aggregation Outside the Marketplace
aware of candidate positions.
A less demanding assumption about Because information has come to the
voters' information is that of "retrospec- forefront of economic theory, econo-
tive voting," a term for voting based on mists have discovered that markets are
a historical review of how well the voter powerful mechanisms for aggregating
has done under recent political party beliefs:
regimes (Valdimir Key 1966). But a the use of competitive markets economizes
central question was whether this kind on the information that any one agent needs
of simplistic (if not simple-minded) vot- to possess. The only things that a consumer
ing could discipline two-party conver- needs to know to make his consumption deci-
sions are the prices of the goods he is consid-
gence to the median voter-a conver- ering consumering . . . if the market func-
gence that seemed robust in models tions well enough to determine the
with stronger informational assump- competitive prices, we are guaranteed an effi-
tions. cient outcome. The fact that competitive
McKelvey and Ordeshook (1985, markets economize on information in this
way is a strong argument in favor of their use.
1986) show that the presence of some (Hal Varian 1987, p. 501)
uninformed voters need not change
equilibrium behavior. When unin- As political scientists have turned to the
formed voters can make inferences study of information in politics, they
about candidation positions from public have found similarly powerful results
opinion polls, all voters eventually vote about the use of voting rules as instru-
as if they were informed. This conjec- ments for the aggregation of informa-
ture received dramatic empirical confir- tion. This is perhaps surprising, con-
mation in Kenneth Collier et al. (1987). sidering the profoundly negative results
In a series of experiments, voters were about voting rules as instruments for the
provided no information about the pol- aggregation of preferences.
icy space, or the policy positions of can- The fundamental insight about vot-
didates, the choices of office-holders; ing and information aggregation was
they simple realized payoffs over time. the Marquis de Condorcet's in the
Candidates knew the form of the policy 18th century. He assumed a group of
space and aggregate voting outcomes, voters facing a binary judgment prob-
but did not know voter payoff functions lem (e.g., "Is the accused guilty or in-
or the distribution of ideal points. Even nocent?"). Each voter would have a
in those stringent conditions, incum- 50 percent chance of being correct with
bents slowly converged to the median no information, using a flip of a fair
voter's preferred outcome. McKelvey coin. With any information at all, we
and Ordeshook (1990, p. 312) conclude can assume that each voter has a prob-
that "lack of information, by itself, does ability p > .5. The important result is
not necessarily preclude the democratic that, if the voters vote independently,
process from being attracted to full in- then a majority will be correct with a
formation outcomes." Candidates com- probability greater than p, and the
peting for the votes, even of dramati- probability that the majority is correct
cally uninformed voters, will be approaches one as the size of the group
disciplined to offer the same policies approaches infinity. Judgmental accu-
that they would offer to the same voters racy is improved merely by using major-
with perfect information. ity rule.
Miller: Economics and Political Science 1193

Condorcet's result, known as the interest because many decisions in


"Condorcet jury theorem," has built-in firms and regulatory agencies are made
restrictive assumptions which various by majority rule or a close variant. And
political scientists have relaxed, with finally, bank runs, marketing fads, and
very little weakening of the underlying stock market bubbles-studied as "in-
conclusion. The original assumption was formational cascades" (Sushil Bikhchan-
that individuals have the same prob- dani, David Hirshleifer, and Ivo Welch
ability p of picking the correct alterna- 1992)-may be studied as the result of
tive. This has been relaxed, and major- highly correlated-and therefore unreli-
ity rule still dominates the average able-group judgments.
individual's judgment, and converges to The study of the political aggregation
one (Bernard Grofman 1975). Another of information seems to have generated
built-in assumption is that the two alter- much more positive results than the
natives being considered are ones for political aggregation of preferences.
which every voter has identical prefer- Analysis suggests that large electorates
ences. But if the "correct" alternative is have the capacity for judgmental syner-
defined as the one which would receive gies; that large uninformed electorates
a majority vote if each voter correctly coerce political parties to find centrist
perceived her self-interest, then the re- outcomes in the same way that large in-
sult goes through as before (N. Miller formed electorates would; that account-
1986). ability may transcend the limited ability
Voters who anticipate being pivotal of democratic institutions to monitor
may vote differently than they would if their expert agents. All of these positive
they were making an individual judg- results may go far toward explaining
ment (David Austen-Smith and Banks why so much of the world seems to be
1996). However, this behavior will sup- striving to create democratic institu-
port a Nash equilibrium in which major- tions, despite persistent theoretical con-
ity rule out-performs the sincere voting cerns about preference aggregation in
outcome (Ladha, G. Miller, and Joe Op- democracies. At the very least, the in-
penheimer 1996). formational properties of majority rule
Most critically, Condorcet assumed are a factor to be considered in the de-
that voters vote independently. How- sign of political (and market) institu-
ever, it is clear that some voters vote tions.
together (with positive correlation) and
others are more likely to cancel each IV. Institutions and Constitutions
others' votes. In this case, majority rule
still out-performs the average individual Downs, Olson, and Arrow influenced
as long as the average correlation is suf- political science by viewing the individ-
ficiently low (Ladha 1992, 1993). If the ual voter, interest group member, poli-
average correlation is too high, then tician, and bureaucrat as a rational
one may expect negative synergies, in maximizer operating against a gray
which the majority may be incorrect backdrop of market-like costs and bene-
more often than one individual. fits. However, the anomalous and para-
While research on information aggre- doxical behavior revealed by this ap-
gation in politics is still new, it may well proach forced political scientists to pay
be of interest to economists who are in- attention to the structured institutional
terested in understanding information constraints on individual maximizing
and markets. In addition, it may be of behavior. Understanding political par-
1194 Journal of Economic Literature, Vol. XXXV (September 1997)

ticipation indicated that individuals did Coase's 1960 article on externalities


not make atomistic choices in a struc- argued that, absent transaction costs,
tureless environment, but responded to equally efficient (but distributionally
blandishments shaped by the social distinct) outcomes could be achieved
structures of which they were a part. from any initial allocation of property
Legislators were seen to create institu- rights. Implicitly, the presence of trans-
tional modifications from simple major- action costs once again could generate
ity rule in order to protect favored poli- significant differences among institu-
cies from the risks associated with tions. Neither of Coase's articles had
majority rule instability. The subtle ma- any significant immediate impact on po-
nipulation of regulatory agencies was litical science.
accomplished by embedding regulatory Although James Buchanan and Tul-
actors in a rich institutional setting lock (1962) did not refer to Coase,
which determined whose preferences transaction costs entered into their in-
were heard inside and outside of the fluential study of constitutional choice.
agency. It was only by focusing analysis They examined, most notably, the rea-
on the institutional determinants of vot- sons to select a minimal majority rule,
ing, legislative, and regulatory behavior an extraordinary-majority rule, or una-
that anomalous behavior began to be nimity rule for political decision mak-
understood. ing. They argued that increasing the
As the force of political institutions size of the required majority increased
was revealed, the emphasis in economic the costs of reaching a decision. De-
modeling shifted subtly from the deter- creasing the size of the majority in-
minants of self-interested choice, to re- creases the expected costs imposed on
straints on self-interested choice. In- non-coalition members. Some standard
creasingly, institutional analysis focused assumptions about the shapes of the
on what came to be known as the "com- cost curves indicate a desirable super-
mitment" issue-settings in which long- majority rule.
term gains could be achieved by limit- This analysis inspired Taylor (1969)
ing, rather than expanding, the scope of to prove that, with equal losses and
individual choice. gains from winners and losers, simple
majority rule is the rule that minimizes
A. The Effects of Institutions on Choices
an individual's expected loss from sup-
The economists who contributed the porting a losing issue or opposing a win-
most to the study of institutions were ning won. Aside from this notable
themselves something of anomalies in result, Buchanan and Tullock's con-
their own profession. In 1937, Ronald stitutional analysis had minimal impact
Coase asked a paradigmatic question: on mainstream political science. In po-
why and when are transactions best or- litical science, institutionalism was
ganized hierarchically within a firm associated with the old school of politi-
rather than through the market? His an- cal science-normative, qualitative, and
swer proved to be an important one to antiquated.
the study of institutions: that transac-
B. Credible Commitment
tions organized in different institutions
impose different patterns of cost, and Oliver Williamson (1975) took the
that some kinds of transactions are or- study of transaction costs and institu-
ganized more economically via one in- tions in an interesting direction by fo-
stitutional form than another. cusing on what he called opportunism,
Miller: Economics and Political Science 1195

which he defined as "self-seeking with was to restrict the self-interested activi-


guile." He pointed out that the possibil- ties of rulers.
ity of post-contractual opportunism can North's concern for constitutional
deter a transaction from taking place at commitment harmonized with develop-
all; one form that transactions costs can ments in game theory and mechanism
take is for partners to find credible design. In the literature on mechanism
ways to commit themselves to each design, theorists discovered a tension
other to nonopportunistic behavior; he between owner profit-seeking and or-
presented an exchange of hostages as a ganizational Pareto optimality that
model of this credible commitment seemed isomorphic with North's con-
(Williamson 1983). cern about rulers. Holmstrom (1982)
Douglass North found a critical role found that, in any interactive team, the
for the concept of credible commitment profits generated by the team could not
in studying the role of political rulers in be exactly divided among the members
economic development. This contribu- of the team in such a way that any Nash
tion was to be a pivotal one for the dis- equilibrium behavior under the division
cipline of political science. His Struc- rule was Pareto optimal. This provided
ture and Change in Economic History a rationale for the historical occurrence
(1981) provided a framework for con- of separation of ownership and control
sidering the role of institutions in the in business firms; he showed that using
development of capitalist markets shareholders to passively absorb profits
which economists had come to under- generated by an efficient scheme al-
stand as normal. Furthermore, his re- lowed the use of a Pareto optimal
search began to attract the attention of scheme that was Nash for the other
political scientists, because it posed players. Unfortunately, as shown by
what was to become a classic issue link- Mukesh Eswaran and Ashok Kotwal
ing the study of politics and econom- (1984), the problem is to keep owners
ics-the commitment problem. passive; whenever the incentive scheme
As North argued, a ruler generally is both Nash and Pareto optimal, the
has incentives to take confiscatory ac- owners must have an incentive, in so far
tions which undermine property rights as they have the power, to replace an
and contract enforcement, and sharply efficient division with an inefficient
constrain the incentives for productive one. Efficiency is inconsistent with self-
economic activity by his own subjects. interest by the ruler. In other words,
The constitutional problem is to con- this demonstrates that North's historical
strain the self-interested activity of the observations about tension between
ruler-to commit the ruler to constitu- profit-seeking rulers and efficiency for
tional constraints that are consistent the society was not, in fact, accidental,
with economic development. but a manifestation of a logical inconsis-
In effect, the analysis of the commit- tency in mechanism design (G. Miller
ment problem turned the previous con- and Hammond 1994).
tributions of economics to political sci- North and Weingast (1989) spelled
ence upside down. The contributions of out the beneficial effects of constitu-
Downs, Olson, and Niskanen had been tional commitment in a thorough case
to assume self-interested choices of po- study of the Glorious Revolution of
litical actors, and then see where self- 1688, and the attendant emergence of
interest led. For North, the fundamen- modern financial markets in England.
tal political-and economic-problem And in a democratic system, this also
1196 Journal of Economic Literature, Vol. XXXV (September 1997)

meant constitutional constraints on the 1995, p. 80). This is confounded by the


public, which demands for itself a con- fact that, typically in repeated games,
tinual stream of self-serving regulations there are a large number of feasible
(tariff protection, industrial barriers to equilibria. As a result, while it may be
entry, etc.; Baron and David Besanko satisfying to know that a particular insti-
1987). In all of these settings, the criti- tution is an equilibrium of an underly-
cal question was no longer, "What ing game, it may also be frustrating to
would self-interested rational actors wonder why that equilibrium came to
do?," but "How could rational actors be be selected by the players rather than
constrained (or constrain themselves) any of a number of others. Was it
not to pursue their self-interest?" achieved by gradual, spontaneous con-
vergence? Or did it come about by con-
C. Institutions as Equilibria
scious, costly bargaining resulting in a
With this concern with commitment, formal agreement? Or was it, perhaps,
it was necessary to show that different imposed by force or violence by a deci-
institutional rules led to different kinds sive subset of actors involved?
of equilibria; therefore, the creation of 1. Spontaneous Convergence. One
different institutional equilibria com- possibility is that a unique institutional
mitted groups to different outcomes. equilibrium can be reached by a sponta-
Calvert (1995), however, criticized this neous process of convergence. As play-
early approach to institutions as leaving ers in the game become aware of how
unanswered the more fundamental others are playing the game, they adjust
question: where do institutions come their beliefs and their own play, causing
from, and are they themselves stable? other players to adjust as well. A par-
He claimed that the most satisfactory ticular equilibrium is reached because
way to examine institutions was to see of the dynamics of the process, rather
the institution itself as the equilibrium. than because it is inherently attractive
All institutions must have a common prop- or obvious. Can this process of mutual
erty: it must be rational for nearly every indi- adjustment in fact lead to the emer-
vidual to almost always adhere to the behav- gence of equilibrium institutions?
ioral prescriptions of the institution, given This evolutionary approach to institu-
that nearly all other individuals are doing so. tions has been much influenced by the
(Calvert 1995, p. 60)
evolutionary game theory of Trivers
Calvert offers several studies which (1971) and Maynard Smith (1982),
examine institutions as equilibria, in- which considered the possibility of
cluding Baron and Ferejohn's study of natural selection for cooperative behav-
majority rule legislative . bargaining, a ior. Robert Axelrod (1984) reported
study of merchant guilds (Avner Grief, that tit-for-tat won two different round-
Paul Milgrom, and Weingast 1995), and robin repeated prisoners' dilemma com-
trading agents (Greif 1989). puter tournaments, and explored prop-
While these latter studies are remark- erties of successful strategies in a
able examples of the "institutions as repeated prisoners' dilemma.
equilibria" approach, they also call to This approach has in recent times led
mind some of the problems that Calvert to a rich literature on equilibrium selec-
mentions with the approach. Specifi- tion in game theory. In a recent exam-
cally, "the institutions as equilibria ap- ple of this approach, Peyton Young
proach . . . says nothing directly about (1993) examines a game played repeat-
the emergence of institutions" (Calvert edly by a sample of different agents
Miller: Economics and Political Science 1197

drawn from a much larger population. have the distributional implications of


The players in any repetition of the institutional change uppermost in their
game have a sample of information minds. This bargaining process may
about how others have played the game lead to abrupt institutional transforma-
in the past, and this leads them to a tions that go beyond the evolutionary
unique pure strategy Nash equilibrium. interpretation of equilibrium selection.
In Young's model, the possibility of oc- The case of the U.S. Constitution
casional mistakes or experiments can re- supports this bargaining view of institu-
sult in a switch to a different equilib- tional change. The switch from the Arti-
rium. As in other evolutionary stories, cles of Confederation was not consis-
Young interprets the resulting equilib- tent with a view of individuals gradually
rium as the "convention" or "institu- converging maximizing over time in re-
tion" that shapes individual behavior. sponse to the behavior of others; rather,
There are clear instances in which in- an institutional framework was con-
stitutions seem to be the result of long- sciously negotiated to appeal to a deci-
term evolution of mutually interactive sive coalition of merchants, artisans,
individual choice. Janet Landa (1994) and southern plantation owners (Eavey
explains the kula ring of Melanesia, for and G. Miller 1989). Other dramatic in-
example, in which symbolically valuable stances of institutional change, includ-
shell bracelets and necklaces are ex- ing the upheaval in the House of Repre-
changed as gifts by a complex set of sentatives in 1910, called for a similar
rules that simultaneously support long- bargaining perspective.
distance trade. The rules are so com- 3. Coercion. In the 1910 power
plex and even bizarre that it is difficult struggle in the House of Representa-
to imagine how these institutions could tives, the fight was over the rules that
have been consciously designed for that the House would use to govern itself;
purpose by any actors, no matter how but the fight itself was conducted
imaginative. Here, certainly, evolution within a more fundamental set of rules
played a role in the origin of institu- that concerned the initial organization
tions. But there may be other situations of the House.
in which equilibria are selected at a In some, anarchical settings there
point in time, rather than evolving may be no fundamental set of rules to
slowly through time. guide institutional bargaining. The
2. Bargaining and Contracts. The breakdown of civic order in the face of
evolutionary interpretation of institu- fighting between rival warlords in So-
tional change is a relatively myopic one, malia or Liberia are recent examples. In
in which each individual makes choices these cases, military force may be the
based on a prognosis of others' likely "bargaining power" that supports one's
behavior. However, the existence of political aspirations, and institutional
multiple, equally viable institutions change takes place only when some co-
must evoke efforts to shift equilibria, alition of actors has gained a military
especially when the distributional bi- position sufficient to enforce a settle-
ases of alternative equilibria may be ment. Literally speaking, the U.S. Con-
known, or at least conjectured. Jack stitution was such a change; the fron-
Knight (1992) offers the compelling tiersmen of western Pennsylvania
case that, at least on occasion, political anticipated negative distributional con-
institutions are explicitly negotiated and sequences stemming from the taxing
contracted for by rational actors who power of the new government, and were
1198 Journal of Economic Literature, Vol. XXXV (September 1997)

correct in that anticipation. The Whis- action through commitment is precisely


key Rebellion represented their contin- the concern. Paradoxically,the effective-
ued opposition to the new institutional ness of markets (in which people are free
regime, and its suppression represented to pursue individual self-interest) de-
a coercive imposition of the new rules pends on a political system that success-
of the game by a coalition that used fully constrains individuals from pursu-
force to control the situation. ing self-interest through political
While military might is the currency channels.
of such a conflict, in a war of "all North and Weingast (1989) argue
against all," coalition formation is of that one of the antecedents to the de-
course the key; no war lord is normally velopment of modern financial markets
capable of defeating all other war lords in England in the early eighteenth cen-
combined. Therefore, the most power- tury was the creation of credible con-
ful war lord derives his power from his straints on the king in the Glorious
ability to maintain coalitional control Revolution, who otherwise had incen-
within his own faction. This coalitional tives to infringe on property rights and
problem is, of course, an inherently un- violate contracts. Thus, the analysis of
stable situation, and gives support to central issues in constitutional design
Schofield's (1995) view that the poten- offers the promise of a better under-
tial for chaos is always just beneath the standing of the origins and precondi-
surface of institutionally derived equili- tions of effective markets and economic
bria. development-surely a significant con-
tribution to the discipline of economics
D. Confronting Institutional Change
itself.
The political economy of institutional Weingast has gone from an analysis of
choice, developed in response to the commitment mechanisms in legislatures
anomalies of rational participation, ma- (with William Marshall 1988) to an
jority rule stability, and commitment of analysis of similar commitment mecha-
rulers, holds promise for a more com- nisms in long-distance trade (with Greif
plete understanding of economics itself. and Milgrom 1990). The problem, in
Baron and Besanko (1987, p. 413) cor- both settings, is protecting both sides of
rectly linked the problem of electoral transactions from the threat of post-
opportunism to commitment in regula- transaction opportunism. The merchant
tion: guilds are in effect a "constitutional" so-
Perhaps the greatest impediment to estab-
lution in the case of medieval trade.
lishing commitment in governmental and These papers demonstrate that under-
regulatory settings arises from electoral com- standing the commitment problem gen-
petition. Presidential candidates and parties erates payoffs not only to the study of
can pledge to preserve or rescind laws or to politics, but also to the study of markets
force regulatory agencies to alter policies
either through the appointment process, ex-
themselves. The very origins of success-
ecutive orders, or the authorization and the ful markets are seen to be dependent
appropriations process. . . The political in- on institutional constraints operating on
centive to respond to an ex post opportunity, political actors.
even though that opportunity results from an
event anticipated under an ex ante efficient
policy, seems unavoidable in many settings. V. Conclusion
While the incentive is unavoidable, the Implicit in the substantive discussion
possibility of blocking the opportunistic above is a point that should be made
Miller: Economics and Political Science 1199

explicit: the most unambiguously bene- ducer/politicians and consumer/voters


ficial effect of economics on contempo- via market-like competition and some
rary political science has been methodo- political substitute for a price mecha-
logical. No matter that Downs' original nism.
model portrayed a world which seemed On the contrary, the most powerful
foreign and patently wrong to many impact has always been from the puz-
political scientists. Because Downs zling paradoxes revealed first by eco-
reached his conclusions with lucid, logi- nomic analysis, rather than from any
cal deductions from reasonable first as- predictable patterns revealed. Olson
sumptions, it was not sufficient for po- made clear the distinction between in-
litical scientists to say "Wrong!" and dividual rationality and social effi-
dismiss the argument. Downs, Arrow, ciency; deplorable conditions such as
Olson, and others not only brought a citizen apathy and systematic policy
new rigor to a theory-starved discipline, bias may be perfectly consistent with in-
they had the prestige of micro-econom- dividual rationality. Arrow did the same
ics behind it. After all, the rationality thing for the distinction between transi-
assumptions worked to explain markets; tivity of the individual and the collectiv-
why should political actors be less ra- ity: voting mechanisms can cycle vi-
tional than other humans? ciously as a result of the self-consistent
It was necessary to come up with an actions of every citizen in society.
equally logical deductive argument Holmstrom (1982) demonstrated the
from equally reasonable first assump- paradoxical inconsistency of individual
tions that led to empirical predictions self-interest and social efficiency when
that were somewhat closer to the world the problem was allocating the product
as political scientists could measure it. of joint effort. These are the puzzles
The casual, verbal argument, supported which have powered the rebirth of po-
by selected case evidence, was no litical science over the past decades.
longer sufficient to carry the day. Thus, From Arrow and others, we have
the primary contribution of economists learned as much from the revelations of
was to force political scientists to think the impossible as we have from the
in terms of rigorous, formal argument. revelations of the possible.
The nature of a serious argument about Given the paradoxical impetus behind
voting, interest groups, or coalitions much of the new political economy, the
changed with the offerings of econo- picture that emerges is one in which
mists. By now, a significant proportion (again contrary to the early economists
of the discipline relies on mathematical in political science) the most powerful
arguments as sophisticated as those in determinants of outcome are not the
economics. atomistic maximizing choices of indi-
Substantively, the contributions of viduals, but the groups and institutions
economists have also been significant. that guide and constrain self-interested
Contrary to the original intent of individual choice. Our understanding of
Downs, though, the contribution of eco- the anomalies generated by the first
nomics was not simply to reveal the generation of political economic analy-
mechanistic, market-like underpinnings sis has propelled political science (and
of the political world. Modern political perhaps economics!) to understand the
economy is not simply an adjunct to rich and compelling social norms and
market analysis, in which smooth ex- institutional contracts that govern po-
changes are made between pro- litical exchange in its diversity. The ac-
1200 Journal of Economic Literature, Vol. XXXV (September 1997)

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