Political and Institutional Economics

Objectives

This course provides a graduate-level introduction to Political and Institutional Economics. The focus lies on explaining how democratic politics and electoral competition crucially matter for economic incentives, and how institutions and governance are key factors for development and for curbing the risk of conflict.

After providing a solid theoretical background to the students, we shall study cutting-edge empirical articles on these topics. Part of these recent influential articles will be discussed in student presentations.

The primary goal of the course is to familiarize the students with this increasingly important subfield of economics and to provide an overview on what cutting-edge research is currently carried out on these topics. A secondary goal of the course is also to foster the applied econometrics and oral presentation skills of the students.

Contents

This course covers the following topics:

SECTION 1: THE BIG PICTURE: ORIGINS OF THE STATE

• Market Failures and the efficiency arguments for the state 
• Redistribution arguments for the state
• State Failure and bad politicians

SECTION 2A: DEMOCRATIC POLITICS AND THE ECONOMY: THEORY

• Downsian electoral competition and Median Voter Theorem
• Probabilistic voting
• Lobbying, rent-seeking and Special interest policy
• Bureaucracy
• Partisan politics: "citizen candidate" and "legislative bargaining"

SECTION 2B: DEMOCRATIC POLITICS AND THE ECONOMY: EMPIRICS

• Incumbency advantage
• Direct democracy
• Political dynasties
• Identity of leaders
• Information, voting and public policies

SECTION 3A: INSTITUTIONAL ECONOMICS AND GOVERNANCE: THEORY

• Inequality and Institution Building
• Determinants of State Capacity
• Institutions and Development

SECTION 3B: INSTITUTIONAL ECONOMICS AND GOVERNANCE: EMPIRICS

• Historical origin of institutions and path dependency
• Ethnic diversity and institutions
• Inequality and institutions
• Institutions and development

SECTION 4A: ECONOMICS OF CONFLICT: THEORY

• War inefficiency puzzle
• Contest success functions and paradox of power
• Political bias and war
• Ethnic conflict
• State capacity and conflict

SECTION 4B: ECONOMICS OF CONFLICT: EMPIRICS

• Ethnic diversity, discrimination and conflict
• Natural resources, climate change and conflict
• Political institutions and conflict
• Policies for Peace
• Economic and political consequences of conflict