Economics 221: Political Economy II Winter 2006-2007 Professor Matthew Jackson Oce: 241; Phone: 723-3544 Email: [email protected] Web site: http://www.stanford.edu/ jacksonm Overview: This course examines political processes and the studies how the design of political in- stitutions a ect societal welfare and economic outcomes. The course starts by examining the motivations for and challenges of forming political states and institutions, and how the structure and workings of political institutions a ect economic outcomes and societal welfare. Topics include: the origins of states, anarchy and the social contract, liberalism, wars and arms races, constitutional design, federalism, models of strategic voting behavior, asymme- tries of information and voting behavior, agenda formation and control, logrolling, lobbying, vote-buying and political in uence, nomination processes, and the politics of federations of states. Prerequisite: Economics 220. Requirements: You will be continuing the work on the projects that you began in Economics 220. This will involve re ning a model and producing some results if the problem you proposed in 220 was theoretical in nature, and if the work is empirical, then you should begin or continue your analysis of data. There will be several di erent due dates of updates on the project. The projects will be judged based on the progress made past what was completed in 220. In the latter part of the course, there will also be student presentations and discussions of some of the papers. A note on the readings and class discussions: Reading the papers before class is critical to the course, as much of the emphasis of the course will not only be on \what" the papers tell us, but also on \why" these are interesting issues and \how" the research was conducted. That is, beyond investigating certain lines of research, there will also be an emphasis on methodology and research techniques. The lectures will include some detailed class discussion of papers, with an eye on some of the following questions. Is the approach taken by the authors appropriate? What are the 1 limitations in the conclusions? Why were certain assumptions made? How robust is the analysis to changes in the modeling or formulation or limitations of the data? How might we do things di erently? What interesting research questions are left open or suggested by the work? Course Outline: The articles and books marked with a \ " are the ones that we will discuss in class, while the others may be mentioned in passing or provide useful background reading. The list of papers is longer than we are likely to have time to cover, but this will o er us some collective choices as the course proceeds. 1. Origins of Political Institutions { Anarchy Hobbes, Thomas (1651) Leviathan, or the Matter, Forme, and Power of a Commonwealth, Ecclesiasticall and Civil, http://www.earlymoderntexts.com/f hobbes.html [Focus on Chapters 13, 14, 15 (they are short)] Piccione, Michele and Ariel Rubinstein (2004) \Equilibrium in the Jungle," mimeo, London School of Economics and Tel Aviv University. http://arielrubinstein.tau.ac.il/papers/eqjungle.pdf Jordan, James, (2006): \Pillage and Property", Journal of Economic The- ory, Volume 131, Issue 1 , November, Pages 26-44. Maggi, Giovanni and Massimo Morelli (2006): \Self Enforcing Voting in In- ternational Organizations," American Economic Review, Vol 96, 4, pp. 1137- 1158. Narayana R. Kocherlakota (1996) \Implications of Ecient Risk Sharing without Commitment," The Review of Economic Studies, Vol. 63, No. 4., pp. 595-609. { The Social Contract, Liberalism, and the State Hobbes, Thomas (1651) Leviathan, or the Matter, Forme, and Power of a Commonwealth, Ecclesiasticall and Civil, http://www.earlymoderntexts.com/f hobbes.html [Focus on Chapters 17-24, 26, 29] 2 Locke, John (1672) The Second Treatise on Government, http://www.earlymoderntexts.com/pdf/locke2tr.pdf Rousseau, Jean-Jacques du Contrat Social; ou, Principes du Droit Politique (1762, reprinted: Paris, Garnier, 1966). http://oll.libertyfund.org/Home3/Book.php?recordID=0132 Mill, John Stuart (1859) Liberty, http://www.earlymoderntexts.com/pdf/milllib.pdf Sen, Amartya (1970) \The Impossibility of a Paretian Liberal," The Journal of Political Economy, volume 78, pp. 152-157. Hurwicz, Leonid(1972)\On Informationally Decentralized Systems," in: C.B. McGuire and R. Radner Eds.Decision and Organization, North Holland, Am- sterdam. Hurwicz, Leonid(1973) \The Design of Mechanisms for Resource Alloca- tion," The American Economic Review, Vol. 63, No. 2, Papers and Proceed- ings of the Eighty- fth Annual Meeting of the American Economic Associa- tion, pp. 1-30. 2. The Structure of States and Nations { Tiebout Models Tiebout, Charles M. (1956) \A Pure Theory of Local Expenditures," The Journal of Political Economy, volume 64, pp 416-424. Alesina, Alberto and Enrico Spolaore (1997) \On the Number and Size of Nations," Quarterly Journal of Economics, 112, 1027-1056. Wooders, Myrna H. (1978) \Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory Greenberg, Jose and Shlomo Weber (1986) \Strong Tiebout equilibrium under restricted preferences domain," Journal of Economic Theory. Kollman, Kenneth, John H Miller, Scott E Page (1997) \Political Institutions and Sorting in a Tiebout Model," The American Economic Review, VOL. 87 NO. 5. 3 LeBreton, Michel and Shlomo Weber (2003) \The Art of Making Everybody Happy: How to Prevent a Secession," IMF Sta Papers, Vol 50, No. 3, 403- 435. http://www.imf.org/External/Pubs/FT/sta p/2003/03/pdf/lebreton.pdf { Federalism Hamilton, Alexander, James Madison, John Jay (1787-1788) \The Federalist Papers," http://etext.virginia.edu/ebooks/pdf/HMJFedr.pdf Palfrey, Thomas R. and Jacques Cremer (2000) \Federal Mandates by Pop- ular Demand," Journal of Political Economy, volume 108, pages 905{927. { Comparing Political Structures Persson, Torsten \Do Political Institutions Shape Economic Policy?" Econo- metrica, LXX (2002), 883-906. Acemoglu, Daron, Simon Johnson, James A Robinson (2001) \The Colo- nial Origins of Comparative Development: An Empirical Investigation," The American Economic Review Diermeier, Daniel and Antonio Merlo (2000) \Government Turnover in Par- liamentary Democracies," Journal of Economic Theory, Volume 94, Number 1, pp. 46-79. 3. Interactions between States { Wars Clausewitz, Carl von (1832)[1976]: On War, edited and translated by M. Howard and P. Paret, Princeton University Press. Schelling, Thomas C. (1963): The Strategy of Con ict, London and New York, Oxford University Press. Blainey, Geo rey (1973): The Causes of War, New York: the Free Press. Bueno de Mesquita, Bruce (1981): The War Trap, Yale University Press. Skaperdas, Stergios (1992) \Cooperation, Con ict, and Power in the Ab- sence of Property Rights," The American Economic Review, Vol. 82, No. 4., pp. 720-739. Fearon, James (1995): \Rationalist Explanations for War," International Organization, 49(3), 379-414. 4 Fearon, James (1997): \Signaling Foreign Policy Interests: Tying Hands ver- sus Sinking Costs," Journal of Con ict Resolution, 41(1), 68-90. Fearon, James (1996) \Bargaining over Objects that In uence Future Bar- gaining," mimeo. Gartzke, Erik A. (1999): \War Is in the Error Term," International Organi- zation, 53(3), 567-87. Kaplan, M.A. (1957): System and Process in International Relations, New York: Wiley. Kirshner, J. (2000): \Rationalist Explanations for War?" Security Studies, 10(1), 143-50. { Democratic Peace Kant, Immanuel [1795] (1991): \Toward Perpetual Peace: A Philosophical Sketch," in Reiss, Kant's Political Writings, Cambridge University Press, 93- 130. Doyle, Michael (1986): \Liberalism and World Politics," American Political Science Review, 80(4), 1151-169. Lake, D.A. (1992): \Powerful Paci sts: Democratic States and War," Amer- ican Political Science Review, 86(1), 24-37. Russett, Bruce (1993) Grasping the Democratic Peace: Principles for a Post-Cold War World, Princeton University Press: Princeton N.J. Bueno de Mesquita, B., Morrow, J. D., Siverson, R. M., and A. Smith (1999) \An Institutional Explanation of the Democratic Peace." American Political Science Review, Vol. 93(4). Wagner, R. H. (2000) \Bargaining and War," American Journal of Political Science, 44(3), 469-84. Jackson, Matthew O. and Massimo Morelli (2005) \Political Bias and War," http://www.stanford.edu/ jacksonm/warbias.pdf { Arms Races Schelling, T.C. (1966): Arms and In uence, New Haven and London, Yale University Press. Wagner, R.H. (1986): \The Theory of Games and the Balance of Power," World Politics, 38(4), 546-576. 5 Baliga, S. and T. Sj•ostr•om(2004): \Arms Races and Negotiations," Review of Economic Studies, 71(2), 351-69. 4. Constitutions { Background Voigt, Stefan \Positive Constitutional Economics: A Survey," Public Choice, 90 (1997), 11-53. Hamilton, Alexander, James Madison, John Jay (1787-1788) \The Federalist Papers," http://etext.virginia.edu/ebooks/pdf/HMJFedr.pdf Arrow, Kenneth J. (1951) Social Choice and Individual Values, New York: John Wiley Press (revised 1963, Cowles Foundation Monograph 12). { Majority Rule versus Unanimity May, Kenneth (1952): \A Set of Independent Necessary and Sucient Conditions for Simple Majority Decision," Econometrica, 20, 680-684. Rae, Douglas \Decision Rules and Individual Values in Constitutional Choice," American Political Science Review, LXIII (1969), 40{56. Badger, Wade W. (1972) \Political Individualism, Positional Preferences, and Optimal