Fall, 2019/2020 MA Program, CEU Pol. Sci. Dept.

CONCEPTS IN POLITICAL ECONOMY

(4 credits)

Lecturer: Attila Fölsz [email protected]

Office hours:
Lectures and seminars: usually

Course description and objective:

The course is an introduction to contemporary political economy, both as an application of economic
paradigms for explaining political phenomena and as a discipline focusing on the links between politics
and economics. To put it differently, in one way or another the entire course will concentrate on two
fundamental questions from various aspects:
- How and to what extent do societal agents act rationally, and what are the societal
consequences of such behaviour?
- How and to what extent do (political) institutions affect behaviour and thus economic
performance?
During the course students will acquaint with different alternative theories, concepts, and methodological
approaches concentrating on these questions.

Learning outcomes:
Students will be acquainted with the basic concepts and paradigms of contemporary political
economy. The acquired knowledge will enable them to pursue individual research on various topics of
political economic nature and choose the appropriate ones among various alternative analytical
approaches.

Teaching format:
The course consists of 24 (2 per week) classes. Topics are introduced in interactive lectures, further
explored on the following seminar. You are only asked to read for the seminars. Lectures are usually the
second classes of the week, followed by the seminar only next week, so that you have enough time to
prepare.

Requirements
 Students are required to attend classes regularly and to participate actively in course discussions.
 Students are expected to formulate written comments and questions about the literature. These short
comments and questions will serve as basis for seminar discussions, and are to be submitted via e-mail
by 8 pm preceding the day of the seminar the latest.
 Students will write brief (40 minutes) written tests at the end of Week 4 and 8 covering the previous
4 topics.
 Students will write an in-class closed-book final exam during the last class.
 During the course all students – to introduce seminar discussions - make a short presentation on a
piece of compulsory literature (or on something else, if agreed with the instructor).

Assessment:
Written questions and comments: 10 %
In-class participation 10 %
In-class presentation 10 %
2 short tests: 2 x 15 %
Final exam: 40 %

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1: Economics, politics and society

Peter Gourevitch: Politics in Hard Times. (Ithaca, New York; Cornell University Press,
1986).Chapters 1, 2 and 6, pp. 17-71; 221-241
Mark Granovetter: Economic Action and Social Structure: The Problem of Embeddedness.
American Journal of Sociology, Vol. 91, No. 3 (Nov., 1985), pp. 481-510d
Suggested:
Levi, M (2000): ‘The Economic Turn in Comparative Politics’, Comparative Political Studies vol.33, No.6/7, pp.822-844.
Locke, J. (1689): Second Treatise on Government, Prometheus Books: Buffalo NY, ch. IX, par.123- 131
Smith, A. (1776): An Inquiry into the Nature and Causes of the Wealth of Nations, Everyman’s Library: London (1991), First
Book: chs. 1-3,
Polanyi, K. (1944), The Great Transformation, Boston: Beacon Press, ch.10

2 - 3: Economy, politics, old and new political economy

Caporaso, J.A. and Levine, D.P. (1992): Chapter 1-2 in Theories of Political Economy,
Cambridge: Cambridge U Press ch.1.
Drazen, Allan (2004): What is political economy? Chapter one in” Political economy in
macroeconomics”, Princeton UP
Besley, Timothy (2007): The New Political Economy. The Economic Journal 117 November
Suggested:
Levi, M (2000): ‘The Economic Turn in Comparative Politics’, Comparative Political Studies vol.33, No.6/7, pp.822-844.
Locke, J. (1689): Second Treatise on Government, Prometheus Books: Buffalo NY, ch. IX, par.123- 131
Smith, A. (1776): An Inquiry into the Nature and Causes of the Wealth of Nations, Everyman’s Library: London (1991), First
Book: chs. 1-3,
Polanyi, K. (1944), The Great Transformation, Boston: Beacon Press, ch.10

4 – 5: The 3 (+2) I’s in social science

Hall, P(1997): The Role of Interests, Institutions and Ideas in the Comparative Political
Economy of the Industrialized Nations in Lichbach – Zuckermnan (eds): Comparative Politics:
Rationality, Culture and Structure. Cambridge University Press 1997
Hall, P. and Taylor, R. (1996): ‘Political Science and the Three New Institutionalisms’, Political
Studies vol.44: 936-57 .
Rodrik, Dani. 2014. "When Ideas Trump Interests: Preferences, Worldviews, and Policy
Innovations." Journal of Economic Perspectives, 28 (1): 189-208.

Suggested
Blyth, M. (1997). ‘[Review Essay] Any More Bright Ideas? The Ideational Turn of Comparative Political Economy’,
Comparative Politics vol.29, No.2, pp.229-250.
Hall, P. A. (ed.) (1993): ‘Conclusion’, in: The Political Power of Economic Ideas: Keynesianism Across Nations, Princeton:
Princeton University Press, pp.361-391.
Schelling, T.C. (1978): Micromotives and macrobehavior, New York and London: WW.Norton, ch.1
Goldstein, J. and Keohane, R. (eds.) (1993): Ideas and Foreign Policy: Beliefs, Institutions, andPolitical Change, Ithaca:
Cornell University Press, ch.1 by the editors and ch.7 by Garrett and Weingast on the single market
Furubotn, E.G. and Richter, R. (2000), Institutions and Economic Theory; The Contribution of the New Institutional
Economics, The University of Michigan Press
Buchanan, J.M. & Tullock, G. (1952): The Calculus of Consent, Ann Arbor: University of Michigan Press, chs. 3, 18
Pontusson, J., From Comparative Public Policy to Political Economy: Putting Political Institutions in Their Place and Taking
Interests Seriously, Comparative Political Studies, 28, 1 (Spring 1995), 117-147)

6-7: Rationality and rational choice

Hindmoor. Andrew (2006): Chapter 8 and 9 in “Rational Choice”, Palgrave MacMillan

Suggested:
Becker, Gary. Chapter 1in The Economic Approach to Human Behavior.: University of Chicago Press, 1990.
Buchanan, J.M. & Tullock, G. (1952): The Calculus of Consent, Ann Arbor: University of Michigan Press

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 8: SHORT TEST I.

8-9: Rationality: limits and criticisms

Ahn, T.K - Ostrom , E ( 2002): Social Capital and the Second-Generation Theories of
Collective Action: An analytical approach to the forms of social capital.. paper prepared for the 2002
Annual Meeting of the American Political Science Association
Sen, A.K. (1977): ‘Rational Fools: A Critique of Behavioral Foundations of Economic Theory’,
Philosophy and Public Affairs 6 (3): 317-344
Suggested:
Green, Steven L (2002):Rational Choice Theory: An Overview.. Mimeo, Baylor University
http://business.baylor.edu/steve_green/green1.doc
Kassim, H. and Menon, A. (2005): ‘The principal-agent approach and the study of the European Union: promise unfulfilled?’
in: E.Jones, and A,Verdun (eds): The Political Economy of European Integration, Oxon and New York: Routledge, ch.3.
Scharpf, F.W. (1997), Games real actors play : actor-centered institutionalism in policy research, Boulder, CO: Westview
Press, ch.6
Tsebelis, G. (1990), Nested games: rational choice in comparative politics, Berkeley, CA: University of California Press,
chs.1, 2.
Schelling, Thomas C. (1960), The Strategy of Conflict, Harvard University Press, Cambridge, 1960. In paperback: Oxford
University Press, New York, 1963. Harvard University Press paperback, 1980.
Sen, Amartya(1995):Rationality and Social Choice. American Economic Review. Vol 85 No.1 , March 1995
Piore, M. J. (1995): Beyond Individualism. Cambridge MA: Harvard University Press, chs. 1, 2

10 - 11: Market and the state; private vs. public goods and redistribution

Barr, N (2003) The Economics of the Welfare State, 4th ed., Oxford: OUP, ch.4.
Hahn, F.H. (1984), “Reflections on the Invisible Hand”, in: Equilibrium and Macroeconomics,
Blackwell: Oxford, pp. 111-133
Suggested:
Begg - Dornbusch - Fisher (2000) Introduction to welfare economics. Ch 15 in Economics McGraw-Hill, London
Hall & Soskice:“An introduction to Varieties of Capitalism” in Hall & Soskice (ed.),Varieties of Capitalism, Oxford UP 2001
Strange, S. (1993): States and Markets, 2nd ed., New York: Basil Blackwell, ch.2

12 - 13: Information, power and institutions

Pratt, John W., and Richard J. Zeckhauser (1985). “Principals and Agents: An Overview” (In
Principals and Agents: The Structure of Business, edited by John W. Pratt and Richard J. Zeckhauser.
Boston, MA: Harvard Business School Press until p,25!
Akerloff, G, (1970). “The market for lemons”, Quarterly Journal of Economics Vol 84, No 3 pp
488-500

14 - 15: Collective action and agency capture

Olson, M. (1982): The Rise and Decline of Nations, New Haven and London: Yale University
Press, chs. 2, 3 [
Lohmann, S. (2003): ‘Representative Government and Special Interest Politics (We Have Met
the Enemy and He Is Us)’, Journal of Theoretical Politics vol.15: 299-319.
Suggested:
Hirschman, A.O. (1992): ‘Exit and Voice: an expanding sphere of influence’, in: idem, Rival views of market society and
other recent essays, Cambridge, MA: Harvard University Press, ch.4
Gellner, E. (1994). Conditions of Liberty. Civil Society and its Rivals. London: Hamish Hamilton, Introduction.
Sabatier, P.A. (1992): ‘Interest Group Membership and Organization: Multiple Theories’ in: Petracca, M.P. (Ed.) : The
Politics of Interests: Interest Groups Transformed, Boulder, CO. Westview, ch.5

16 - 17: Legitimacy and accountability

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 Majone, G. (1997), ‘The Regulatory State and its Legitimacy Problems’, West European Politics
vol.22, No.1, pp.1-24
McNamara, K.R. (2002): ‘Rational Fictions? Central Bank Independence and the Social Logic of
Delegation’, West European Politics 25(1), pp.47-76.
Majone, G. (2001): ‘Two Logics of Delegation. Agency and Fiduciary Relationships in EU
Governance’, European Union Politics vol.2, No.1, pp.103-122.
Suggested:
Downs, A. (1957): An Economic Theory of Democracy, New York: Harper and Row, chs.1, 2, 3
March, J.G. and Olsen, J.P. (1989), Rediscovering Institutions. The Organizational Basis of Politics, New York: Free Press,
ch.7
Buiter, Willem H. (2006), “"How Robust is the New Conventional Wisdom in Monetary Policy? The surprising fragility of
the theoretical foundations of inflation targeting and central bank independence" , mimeo, European Institute, London School
of Economics and Political Science, June 2006. http://www.nber.org/~wbuiter/konstanz.pdf .

16: SHORT TEST II.

18 - 19: Credibility, commitment and conditionality

Giavazzi, G., and Pagano, M. (1988): ‘The Advantage of Tying One’s Hands: EMS Discipline
and Central Bank Credibility’, European Economic Review, vol. 32, pp.1055-1082.
Lohmann, S. (2003) ‘Why Do Institutions Matter? An Audience-cost Theory of Institutional
Commitment’, Governance vol.16, No.1, pp.95-110.
Rodrik, D. and Zeckhauser, R. (1988): ‘The Dilemma of Government Responsiveness’, Journal
of Policy Analysis and Management vol.7, No.4, pp.601-620.
Suggested
Cukierman, A. (1992): Central Bank Strategy, Credibility, and Independence: Theory and Evidence, Cambridge, MA &
London: MIT Press, ch.2 [
Blinder, Alan S. (1999), Central Banking in Theory and Practice, Cambridge, MA: MIT Press.
McCallum, B. T. (1995), “Two fallacies concerning central bank independence”, American Economic Review, Papers and
Proceedings, vol. 85 (May), pp. 207-211.)

20 - 21: Political competition and economic policy-making

Drazen, Alan (2000) The political business after 25 years. NBER macroeconomics annual,
Dubois.. Eric (2016) Political Business Cycles 40 Years after Nordhaus. Public Choice, Springer
Verlag, 2016, 166 (1-2), pp.235-259.
Suggested
Nordhaus, WD (1989) Alternative approaches to the political business cycle - Brookings Papers on Economic Activity
Pruice, Simon (1997) Political business cycles and macroeconomic credibility: A survey . Public Choice Vol 92 No.3,4

22 - 23:Fiscal federalism and decentralization

Oates, Wallace. 1999. “An Essay on Fiscal Federalism,” Journal of Economic Literature. Vol. 37
(3). p 1120-49
Weingast, Barry :Second generation fiscal federalism: THE implications of fiscal incentives.
Journal of Urban Economics, 65 (2009), pp. 279-293
Suggested
Oates, Wallace: Toward A Second-Generation Theory of Fiscal Federalism. International Tax and Public Finance, 12, 349–
373, 2005
Giampaolo Garzarelli, 2005. "Old and New Theories of Fiscal Federalism, Organizational Design Problems, and Tiebout,"
Public Economics 0509009, EconWPA
Rodden, Jonathan (2003) “Reviving Leviathan: Fiscal Federalism and the Growth of Government. International
Organization. Vopl 57. No 4, November 2003
Weingast, Barry. 1995. “The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Growth,”
Journal of Law, Economics, and Organization 11: 1-31

24: FINAL EXAM

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