- Elgar original reference
Edited by William F. Shughart II and Laura Razzolini
Chapter 8: Institutions, durability, and the value of political transactions
8 Institutions, durability, and the value of political transactions W. Mark Crain* 1 Introduction Public choice nourished the reunion of economics and political science, disciplines that had become increasingly detached during the ﬁrst half of the twentieth century. The study of economic policy making in a political vacuum had fatal weaknesses, and the tools of modern economic analysis readily transferred to decision making in non-market settings. Between the late 1950s and the middle 1970s the public choice literature burgeoned with scholarly research stressing the similarities between the market process and the political process – and the interplay between these sectors.1 In 1975 William Landes and Richard Posner drew attention to a key difference between market transactions and political transactions. Their seminal paper revealed that a major institutional detail underlying the analysis of politics as an exchange process had been glossed over. The legal system customarily guarantees that parties involved in market transactions will live up to their agreements. In private sales and contracts buyers and sellers have recourse to legal sanctions in the event of non-performance by one of them. Market exchanges occur with limitless frequency because the participants may rely if necessary on the courts to enforce their commitments. Landes and Posner noted that political transactions lack this third-party enforcement mechanism. In political transactions third-party enforcement is not possible simply because one of the parties to the agreement, the government, can subsequently change the rules or renege without fear of legal sanctions. For example, suppose that an elected representative promises...
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