Friday, September 23, 2016

Expanding institutional economics

In the last issue of the Journal of Economic Literature, Pranab Bardhan makes a number of criticisms to contributions by new institutional economists, including Acemoglu and Robinson. The most important of these criticisms, in my view, is that this literature does not give sufficient attention to the contradiction between committing to respect property rights and political accountability. Another important criticism is the resistance in this literature to consider other functions of government beyond respecting property rights such as providing coordination for example in the context of modern industrial policy. The criticisms of Bardhan elaborate or complement previous criticisms of the same literature by Clark, Chang, Allen and McCloskey. In my view, the arguments of these authors do not invalidate the work of authors such as North, Weingast, Spiller and others, who build on the seminal work by Coase and Williamson, but actually expand their focus and conceptual framework. At the end of the article, some suggestions are given for future research, among which I particularly liked this one: "An important, yet largely unresolved, issue is to find clear directions from empirical data about when democratic processes lead to long-term investments in public goods serving the poor and when they instead degenerate into short-term populism and clientelistic patronage distribution. What, empirically, is the pattern of the dynamics of erosion of political clientelism, and why does it vary so markedly between countries or even regions?"

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