ECONOMIC APPROACHES TO POLITICS

Economics
• Economics is the social science that studies
the production, distribution, and consumption
of goods and services.

Defining economic appraches to politics

• At the heart of an economic approach to
politics are rational choice and efficiency
 Rationality
• To understand the concept of rationality, one
must first understand the concept of
preferences, beliefs, opportunities, and
actions.
• In order to achieve the goals, it is necessary to
have preferences and there is a need of
classification of preferences, and they must be
in transitive form. In simple words it means, a
is favourable to and b is favourable to c.
• The emphasis on beliefs implies that
individuals do not act out of pure habit or
emotion rather they do have beliefs.
• Beliefs are closely related to actions and
results with regards to benefits.
• E.g, we may believe that avoiding eggs and
eating oat bran will prolong our lives, but we
may be wrong.
• The third component includes resources and
constraints which comes under preferences.
• What one wants and can get are two different
things unless aspirations are completely
determined by possibilities.
• Actions are the observed choices of agents.
• An action is rational when it stands in a
relationship to preferences, beliefs, and
resources.
Efficiency
• The means and the ways through which the
resources are utilized.
• A firm’s productive efficiency has to do with
way it uses its inputs of land, labour, and
capital to produce goods and services.
• For a consumer, efficiency is when he/she gets
great outcomes with the less inputs., e.g,
limited budget.
• According to Pareto, collective allocation is
optimal if resources are arranged or provided
in a manner that they benefit all rather than
benefit one individual at the cost of another
individual’s benefit.
 Normative
• Analysis of desirable properties
• What sort of institutional arrangements are
efficient?
• What type of voting rules?
• Will federal or unitary system be able to work
better?
 Positive
• Explanations of those rules, procedures and
their consequences.
• Why and how do people establish laws?
• What accounts for behavior of legislators?
• What kind of decisions made by state?
• What factors merges in formation of groups
 Economic analysis of Policy
• Close relationship with PCT
• Sphere of Government
• Constitutional principles of Government
• Effective way to achieve goals
• Government had limited role in control of
market
• Cost effective policy
 Economic analysis of Institutions

• Defined by North and Thomas

• Enhance cooperation, transaction cost and
production
• Political institutions focused on state power
and authority
 Institutions and market behaviour
• Markets behave like institutions

• Institutions define scope of market exchange

• Institutions used to change motives

 Economic reasoning and institutions
• Two school of thought
• Rational choice of the institutions

• No rational choice of institutions

• According to Arrow and Shepsle
• Endogenous theory of Institutions
 Conclusion
• Voters, consumers choose different candidate

• Efforts of institutions and behavior

• How we analyze economics into politics

• Gain maximize collective outcomes

THANK YOU