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Perspectives on Positive Political Economy.

Edited by James Alt and Kenneth Shepsle. New York: Cambridge University Press (Cambridge Series in the Political Economy of Institutions), 1990. Pp. x, 268. $49.50 hardcover, $16.95 paper.

"Oh, call it by some better name. . . " Thomas Moore, in Ballads and Songs, st. 1. The first question to ask is, why can't these people pick a name and stick with it? Nonmarket decision making, public choice, political economy, neoinstitutionalist economics, and now "Positive Political Economy?" There seems to be developing, in academics as in civil culture, a trend toward new names with a half life of about two weeks. One hopes that "PPE", unlike its nomina dubia ancestors, lasts at least long enough that someone other than practitioners have heard it before it is changed again.

If this book is any indication, it will last much longer. Unlike most edited volumes, this works as a collection. There are no clinkers, no weak contributors and no weak contributions. The essays are divided into three sections: "The New Political Economy," Organizations, Transactions, and Opportunities," and "Reflections on Theoretical Foundations." The last section comprises four essays, by Douglass North, Mancur Olson, William Riker, and Gordon Tullock. These are not simply "great man" papers; rather, each is a serious attempt to make sense of where PPE now stands from an intimate knowledge of where it was born.

Most of the essays will be of more use to political scientists than to economists (with exceptions to be noted below). The first piece, by Peter Ordeshook, ought to be of use to everyone. Aptly tittle "The Emerging Discipline of Political Economy," Ordeshook challenges the conventional distinctions of the academy:

That political and economic processes cannot be separated

seems evident . . . From this view, it is

surprising to find economics and politics divided into distinct

disciplines, with their jointly study impeded

by bureaucratic divisions at universities, by the specialization

of scholarly journals, and by the prevalent

use of modes of inquiry in political science that are seemingly

at odds with those used in economics . . .

Nevertheless, an emerging intellectual synergism promises to

blur boundaries altogether [p. 9].

Ordeshook's thesis is provocative, and his support for it persuasive. Properly done, PPE is distinct from both political science and economics, not so much because those disciplines are unable to address the questions of interest, but because they have chosen not to. PPE is characterized as possessing three essential attributes. (1) An explicit statement of assumptions. (2) Empirical statements about the world derived explicit from those assumptions through a mathematically rigorous process, and (3) A focus on "those features of reality that economists discarded in order to facilitate theorizing" [p. 10]. the Political Economy of Institutions), 1990. Pp. x, 268. $49.50 hardcover, $16.95 paper.

In short, the new techniques in the theory of signalling games and asymmetric information do more than improve the study of politics. Ordeshook predicts that these methods will allow PPE theorists to improve our understanding of the dynamics between institutions and incentives, between politics and markets, in ways that will make much of both political science and economics obsolete. One can agree or not, but nowhere else have I seen this argument made so clearly, forcefully, and accessibly. For the Ordeshook essay alone, the book is well worth buying.

Space prevents a consideration of each of the essays individually, some of which are stronger than others (for example, Robert Bates's essay on macro-political economy is an excellent critical introduction and overview of a complicated field). The piece of particular note is by David Kreps, "Corporate Culture and Economic Theory." Long an underground classic in mimeo form, copyright problems with the original (published in Japanese in a book entitled Technological Innovation and Business Strategy) had apparently meant it would be unpublished here in equilibrium. Alt and Shepsle managed to untangle the Gordian knot of international intellectual property rights, and present the paper as a PPE piece even though the ostensible topic is private corporate culture.

They are right on the money, too, for this paper is wonderfully, astonishingly good. Kreps appears to recognize that the discussion could apply equally well to political culture and party ideologies, though he does not make much of this connection himself. His thesis is that persuasive, and until recently largely unmodelled, problem of uncertainty is at the root of many of the institutional arrangements we observe in both the public and private sectors.

[I]n many transactions, in particular ongoing ones,

contingencies typically arise that were unforeseen at the

time of the transaction itself. Many transactions will

potentially be too costly to undertake if the participants

cannot rely on efficient and equitable adaptation to

these unforeseen contingencies. Note that such reliance

will necessarily involve blind faith; if we cannot foresee

a contingency, we cannot know in advance that we can

efficiently and equitably meet it . . . What is the source

of this faith? It is that . . . (firms are) characterized

by their reputations. The way an organization adapts to

an unforeseen contigency can add to or detract from

that reputation, with consequences for the amount future

employees . . . will have [p. 92, emphasis added].

In addition to the Bates and Kreps papers, each of which should be of interest to economists, Mancur Olson and Douglass North each have papers in the last section that, for those who have not seen brief summaries of these scholars' basic approaches, are useful introductions. Olson, of course, bases his explanation of changes in societies on costs of collective action. North emphasizes the costs of transacting and the consequences of the institutions that are designed, or that evolve, to reduce transactions costs. Both these works are solidly within the subject of economics, but the approach, at least in these papers, mark the authors as leaning toward PPE.

For economists who are skeptical of the value of political science in PPE, I would remind them that the fundamental and entirely new insights of the approach would not have been possible without the nagging of political scientists such as Alt and Shepsle that institutions matter. For political scientists, I would suggest reading Kreps' essay, but substitute the word "party" whenever he says "firm;" this is not a political science way of thinking. For anyone interested in the frontiers of positive social science research, I would say buy this book and read it. Michael C. Munger University of North Carolina, Chapel Hill
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Author:Munger, Michael C.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Apr 1, 1992
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