Rational Choice and Dysfunctional Institutions

As stated elsewhere in this issue, we cannot claim to explain an institution's origin just by the functions it serves. In part thismay be because of the cognitive limitations of those actors who are instrumental in institutional formation and institutional change. But even more clearly, it is the case that rational instrumental choice does not imply functional institutions. Just as rational choice in a prisoner's dilemma may result in inefficient policies, rational choice by actors with conflicting preferencesfor institutions may result in institutions that are suboptimal. Examples of rational choice explanations of dysfunctional institutions are provided in the area of bureaucracy, regulation, healthcare, and budgeting. I argue that the paradoxes and impossibility results of rational choice theory offer the best insights currently available into the persistent inefficiencies of the world ofpolitics.     

The Welfare State as Rational Choice: Social Democracy in a Post-Socialist World

In this article* it is argued that rational choice analysis can help explain social democratic welfare states (SDWS). It explores the common ground between the methodological individualism of rational choice political economy and the "U-shaped curve" central to neocorporatist analysis, the idea of a curvilinear relationship between the level of corporatism in institutional arrangements and societal welfare. Central to the SDWS, it is suggested, is the reduction of information costs due to the configuration of institutional arragements in three key arenas of social action in the SDWS: the informational-cultural; the organizational-economic; and the governmental-political. These arrangements frame the choices under which rational individuals act to maintain the SDWS and the outcomes it produces. Concrete examples demonstrating the usefulness of the approach are offered in terms of explaining differences in policy choices (and therefore outcomes) between the Scandinavian countries and more laissez-faire systems such as the US. The conclusion looks at the prospects for the SDWS, asking just how the institutional arrangements central to the SDWS are being challenged by recent developments.     

Public affairs and political strategy: theoretical foundations

During the past two decades there have been hundreds of articles published within the broad topic of business political strategy, many of them rigorous and innovative. This paper presents a review and assessment of the theoretical bases of extant research, focusing on three broad research questions: Why do firms participate in the political process? What strategies and tactics do firms employ? What are the limitations on firms' capacity for rational action in the political arena? Research in political strategy has been informed by interest group theory, collective action theory, public choice theory, transaction costs theory, game theory, resource dependence theory, institutional theory, agency theory, the behavioural theory of the firm, business strategy, and population ecology. The paper concludes with a plea to scholars to conduct research in this area which is explicitly and consistently grounded in broad theories of social science. Copyright © 2001 Henry Stewart Publications     

Are homo economicus and homo politicus identical twins?

When we view social and economic cooperation through the lens of game theoretic strategic interaction, we find that they have essentially identical abstract representations. If instead we view them substantively according to the issues with which they deal, they are commonly different. But even while they are substantively different, they depend heavily on each other, so that at the very minimum they are inextricably intertwined. If we do not get our economic interactions right, our social interactions will fail too, and vice versa., In other words, the social and economic fields are game theoretically identical; and they are substantively inseparable, even though they are not identical. Arguably the chief reason that we often separate them is that their modal focuses differ dramatically. In the development of microeconomics the focus is overwhelmingly on pairs involved in exchange. Politics primarily deals with the larger group and social levels of interaction. The movements of rational choice theory and of institutional economics in our time are fairly far reaching efforts to bring these two focuses together.     

The New Institutionalism and EC Governance: The Promise and Limits of Institutional Analysis

The "new" institutionalisms" in rational choice and historical analysis are being applied with increasing sophistication and accuracy to the study of European Community governance. The basic premise of such institutional approaches is that EC institutions, once created, "take on a life of their own," acting as independent or intervening variables between the preferences and power of the member governments on the one hand, and the ultimate policy outputs of EC governance on the other. The challenge for institutionalist theory consists in constructing a precise analytical tool-box that will allow us to make specific predictions about the ways in which, and the conditions under which, EC institutions may exert such an independent causal influence. EC institutions matter, I suggest, insofar as they: lend stability to an existing institutional structure; shape any subsequent amendment of those institutions; allow individual member governments to be outvoted by qualified majority; cause member states to lose control of events through lock-ins; and subject member governments to the actions of supranational agents whose behavior they can control only imperfectly.     

Perceptions of policy choice in contemporary democracies

Though the concept of choice is essential to democracy, little is known about how citizens make sense of the diversity of policies offered by political elites. Research has found that institutional arrangements such as low electoral thresholds and multiple party competitors are associated with greater policy choice. Other work emphasises non‐institutional factors. No research, however, examines what the voters think. In this article these alternative explanations are assessed in terms of whether citizens believe parties to provide choice over policy. Evidence from 25 democracies reveals that electoral and party systems have no direct effect. Choice perceptions are instead affected by non‐policy factors: social heterogeneity and individual political dispositions. This result contrasts with analyses showing a strong connection between electoral rules and the diversity of messages communicated by parties during campaigns. The article also shows how choice perceptions matter for political behaviour. Overall, study findings imply that the promise of institutions for fostering representation is weaker than previously assumed.     

Extending the rational choice model from the economy to society

That the extension of the rational choice model beyond the economy to all society can finally lead to integration of social theory is often claimed by the model’s advocates. The underlying assumption is that this model is valid for both the economy and society, in the form of an economic approach to, or a utilitarian paradigm of, all social behaviour. The meta-theoretical presupposition or injunction that agents are (should be) profit-seekers or utility-optimizers is therewith given the mission to integrate and ‘save’ contemporary social science. However, such extensions of the rational choice model from the economy to society neglect the fact that this presupposition has been partly mitigated and compromised within economics itself. If so, then suspicion is strong that the rational choice model would be even less appropriate for the other social sciences and thus fall short of achieving its self-designated role of integration of social theory. The conclusion of an interdisciplinary analysis drawing both from economics and sociology is that rational choice is far from being an integrative model of the economy and society.     

Can markets be expected to prevent themselves from self‐destruction?

Even if competitive markets have shown themselves to be the most efficient organizational form for creating economic efficiency, the question of how they can avoid destructive influence from agents with opportunistic motives remains unresolved. Different institutional approaches have argued that to be efficient, markets need to be embedded in a set of formal and informal institutions. Because such institutions will in the long run make all market agents better off, they are labeled efficient institutions. Contrary to what is argued in neoclassical economics, it is unlikely that such institutions will be created endogenously by market agents because the institutions are to be understood as genuine public goods. Moreover, if such institutions have been established, we should expect market agents to face a collective action problem when sustaining them, leading to the destruction of the institutions. The conclusion is that if left to themselves, markets should be understood as inherently self‐destructive.     

An evolutionary dynamic of revolutions

It has been argued that rational choice theory is unable to explain the occurrence of social revolutions. This paper argues that if social revolutions are modeled in an evolutionary setting it is possible to predict when revolutions occur. It is shown that revolutions are expected to occur when regimes lose their determination to punish revolutionary activity early and severely. In the process of constructing the model some results about public good provision are generalized.     

The effect of misperception on strategic behavior in legislative settings: Social psychology meets rational choice

This paper is about the conditions under which simple social psychological processes can affect collective decisions. In rational choice theory, social psychological effects are said to cancel out, be randomized, or be corrected by communication. Yet as Janis and Mann (1977) argued, there are generally recurring conditions in which such factors influence individual decisions. The question is, Under what conditions can we expect these factors to affect collective decisions? This paper suggests a general approach to identifying the effects of strategic misperception, illustrates it with an example of a social psychological process that affects player perceptions, and describes the preference distributions in which this simple process would change majority voting outcomes. The general conclusion is that strategic misperception may affect majority decisions under so many distributions of preferences that decisions cannot be predicted from knowledge of actors' preferences alone.     

Answering the Public Choice Challenge: A Neoprogressive Research Agenda

A neoprogressive research agenda is developed to challenge public choice theory's position as the new orthodoxy in both understanding and guiding policy choices about urban service delivery. Such a challenge requires more than accumulating negative empirical tests. Rather, we must accept the new burden of proof laid on proponents of progressive reform institutions by the theories of nonmarket failure and quasimarkets, ideas that undermined the intellectual pillars supporting progressive reform institutions and can only be challenged by new ideas. Public choice theory itself, broadly considered, is proposed as a valid source of such new ideas. Three research programs, in part already underway, are outlined as essential building blocks in the research agenda, focusing, respectively, on blunting the rough edges of the theory of nonmarket failure, coordinating the empirical critiques of quasimarkets in a new theory of quasimarket failure, and developing the new institutionalism so that it can provide the basis for comparing the production outcomes of alternative urban institutions.     

Governance as a strategy in state-of-nature games

Public choice scholars routinely claim that coercion can be used to solve the social dilemma. However, while social contract theorists have frequently described state-of-nature societies using game theory, they have not used game theory to show how coercive action within such societies can improve outcomes. Here I operationalize the concepts of coercion and governance within a Prisoners’ Dilemma (PD) framework; governance is operationalized as coercion to compliance, and to adopt a coercive strategy is to impose a strategy choice upon another player. I show that, under certain conditions, adding governance strategies to a noncoercive one-shot PD game can improve outcomes.     

Aggregation technology of common goods and its strategic consequences: Global warming,biodiversity, and siting conflicts

Abstract. The analysis of common goods needs to look closely at the characteristics of the goods in question and the social situations in which they are provided. Different characteristics lead to different strategic constellations and therefore to different opportunities for institutional solutions to the problems of provision. Basic differences in strategic constellations can be shown clearly by employing matrix games. In this paper a particular attribute of common goods, their aggregation technology, is systematically analyzed. Three variations in this dimension are exemplified by cases from environmental policy. It becomes clear that the analysis of one specific attribute of a good will seldom suffice to predict empirical behavior. Nevertheless, rigorous game theoretic analysis provides valuable insights into the links between the characteristics of common goods and the need for institutions.     

Aggregation technology of common goods and its strategic consequences: Global warming, biodiversity, and siting conflicts

The analysis of common goods needs to look closely at the characteristics of the goods in question and the social situations in which they are provided. Different characteristics lead to different strategic constellations and therefore to different opportunities for institutional solutions to the problems of provision. Basic differences in strategic constellations can be shown clearly by employing matrix games. In this paper a particular attribute of common goods, their aggregation technology, is systematically analyzed. Three variations in this dimension are exemplified by cases from environmental policy. It becomes clear that the analysis of one specific attribute of a good will seldom suffice to predict empirical behavior. Nevertheless, rigorous game theoretic analysis provides valuable insights into the links between the characteristics of common goods and the need for institutions.     

Consultants, depoliticization and arena-shifting in the policy process: privatizing water in Berlin

This paper examines the effects of the growing presence of management consultants in policy processes. In particular, it addresses the key concern that consultants employed by governments often operate in new institutional arrangements not subject to the formal rules of political systems. Their activities, often secretive, are seen to undermine the democratic legitimacy of political decision-making. Despite the significance of these concerns there is still a lack of conceptual and empirical research on these topics. Addressing this gap, the paper first seeks to begin a more conceptual discussion about the role of consultants and “governance”. Turning to the literature on depoliticization in public policy, and following Flinders and Buller (Br Polit 1(3):293–318, 2006), it is argued that the hiring of consultants should be seen not as a move from political to apparently neutral, expert forms of policy-making, but as a shift in the arena of political decision-making. Such shifts can contribute to the emergence of what Hajer (Policy Sci 36(2):175–195, 2003a) calls the “institutional voids” of governance: the emergence of ad hoc political spaces in which the rules and outcomes of policy-making are unclear. It is argued that these ad hoc spaces may work to undermine the traditional institutions of political systems without providing an alternative form of democratic legitimacy. The paper examines these issues with reference to a case study of consultants working for the Berlin government on the privatization of the Berlin Water Company in 1999. It concludes by reflecting on the usefulness of the arena-shifting notion and outlining areas for future research.     

New Institutionalism and Minority Protection in the National Legislatures of Finland and Denmark

The individual camps within the new institutionalist paradigm generally argue that every political actor operates within a specific framework of opportunities and that the physical environment in which bargaining takes place is very important to understanding political outcomes. This article uses three of the new institutionalisms to answer two important questions concerning minority‐protecting institutions in the national constitutions of Denmark (Article 42) and Finland (Section 66). First, why were such institutions developed? Second, why were these institutions ultimately removed in Finland, but not in Denmark? For both countries, it is argued in this article that historical and discursive institutionalism are useful for understanding why such protections were originally considered necessary by particular political groups in society: the rise of socialism during the late twentieth and early twenty‐first centuries compelled non‐reformist parties to push strongly for constitutional change that would legalize powerful procedural tools that could delay and potentially reverse policy decisions passed in parliament. However, the article invokes rational choice institutionalism to explain why the outcomes in terms of the use of such institutions differed over time in the two countries: differences concerning the scope and timing of the relevant procedures compelled opposition parties to utilize them differently. As a result, the legislative process was often stalemated in Finland (and the procedures were subsequently removed in 1992), while in Denmark, the procedures contributed to a parliamentary culture based on consensus and pre‐legislative bargaining and hence, still remain.     

Modernization Programs in Perspective: Institutional Analysis of Organizational Change

Contemporary reform programs give students of comparative public administration a new chance to update their theoretical ideas about organization and organizing. Do forms of government and political institution matter? If so, what are the effects of different organizational forms? Why do we have the institutional forms we have? How can we explain their origins, persistence and development? This article explores the possible value of organization theory for the study of comprehensive administration reform. An attempt is made to specify how modernization efforts may be affected by properties of existing institutions. It is argued that contemporary modernization programs are based on an instrumental view of organizational decision-making and change. An institutional perspective is then outlined.     

Adversary and cooperationist institutions for conflict resolution in public policymaking

Compared with other societies, the United States makes unusually extensive use of adversary institutions for resolving public conflicts—that is, institutions where the job of advocates is to present for a third party the strongest possible case for their own point of view and where responsibility for actual political choice is then left to the third party. This article presents a case for placing greater reliance on “cooperationist institutions,” that is, ones where parties talk with each other rather than to a third party and where the parties attempt to reach agreement among themselves, acceptable to most or all the participants, about the issue in question. The case for cooperationist institutions is argued in terms of the effects of such an institutional design on the development of public spirit among participants in the policymaking process. The article also considers objections against cooperationist institutions and concludes by making some suggestions about the concrete forms that such institutions might take in the United States.     

On Sen's Liberal Paradox and its Reception within Political Theory and Welfare Economics

In this article, Amartya Sen's seminal proof of the impossibility of a Paretian liberal is briefly reviewed. I then discuss the reception of this alleged 'liberal paradox' within the fields of political theory and welfare economics. In particular, I examine the criticisms made by Brian Barry, and their wider implications for the field of social choice theory. It is argued that the various criticisms made on Sen's characterisation of liberty are fundamental, and that Sen's subsequent defence of his position is unconvincing. Moreover, there remain some wider doubts as to the usefulness of social choice theory's SWF approach to individual rights and freedoms.