Ricardo Puglisi has an essay in the 2005 STICERD Review which argues that the LSE approach to political economy sits between the grand theorizing (but non-empirical) public choice tradition of James Buchanan and Gordon Tullock, and the macro-empirical political economics of Persson and Tabellini.
The LSE approach, Puglisi tell his reader, is characterized by four distinctive traits in resarch: (1) combine theory and evidence; (2) focus on small, self-contained, and meaningful objects within a given set of political institutions rather than all-encompassing political institutions; (3) sound empirical methods as exemplified by panel data analysis as opposed to cross country analyses that intrinsically suffer from omitted variables and problems of heterogeneity, and (4) a search for black holes in the existing literature that might be filled in a manner similar to the Becker inspired Chicago approach.
Puglisi argues that the LSE approach to political economy results in politically feasible political economy. This LSE approach to political economy is most closely identified with Tim Besley. But does it really represent a separate school of thought in political economy as Puglisi suggests? Follow this link to a list of papers in political economy and public policy.
While I was here at the LSE I read closely Tim Besley's Principled Agents?: The Political Economy of Good Government (Oxford University Press, 2006). Besley seeks to place his contribution between the social welfare function tradition of public economics associated with traditional economics from Pigou through Samuelson up to Stiglitz, and the public choice tradition of public finance identified with Buchanan, Buchanan and Tullock, and Brennan and Buchanan. Standard social choice theory is judged to be naively optimistic about government's ability to introduce public policy as if it is being done by a benevolent social planner, but standard public choice is too pessimistic with its assumption that all men are knaves. Besley, instead, wants to focus on how political institutions can be set up to select political leaders that reflect the virtues and talents required to rule in the public interest. Thus the title of his book.
It is a powerful book and reflects one of the most informed challenges to standard public choice yet written. The older criticisms of public choice found in Green and Shapiro's The Pathologies of Rational Choice (which was empirical in nature) and Wittman's The Myth of Democratic Failure (which was theoretical in nature) both falter as criticisms of the work of Buchanan et.al., in the Virginia school of political economy. But Besley's book is fundamentally different and constitutes both an internal critique of the Virginia School and a transcendent one that examines how the political structure can also feedback on to character traits of political actors (echoing in this regard the very insiightful paper by Brennan and Pettit the theme of how while power can corrupt political office can ennoble). Besley's book gives the reader from within the Virigina School of Political Economy a lot to think about.
But it is not clear to me that Besley's work represents a different tradition in political economy any more than the William Riker inspired group of rational choice politics in the hands of Barry Weingast constitutes a significant break from the public choice economics of Buchanan and Tullock. There are no doubt differences in the different approaches to public choice (Virginia, Rochester, Chicago and Bloomington were the traditional dividing lines). But there are also common themes that unite political economists. Also, even in a strict rendering of Virginia School Political Economy, this issue of political selection and character was not completely ignored in that literature. As mentioned Geoff Brennan has looked at how office can ennoble man as well as how we must guard against politics corrupting them. David Levy, Tyler Cowen, and Dan Klein have all written extensively on issues of approbation in politics and other non-market settings. Gordon Tullock's work on bureaucracy deals at length with the principal-agent issue and the mechanisms constructed to attempt to cope with the problems identified.
There are problems with the standard public choice literature and Besley addresses a behavioral one (though as he notes this problem depends on the purpose for which the behavioral assumptions are being deployed), but there are also issues of the epistemic environment of politics which are not adequately addressed in imperfect information models of political processes. My colleague Bryan Caplan has tackled one side of this issue with his work on rational irrationality in the context of politics. But another approach could be in the application of Hayek's notion of the contextual nature of knowledge to the realm of politics. If the work of Buchanan is pessimestic about government as a corrective device because of incentive issues, then Hayek inspired work in political economy would be pessimistic because of structural ignorance. See my paper on Hayek's contributions to public choice theory in The Road to Serfdom and also my paper with Pete Leeson on Hayek and Arrow on democracy.
But admittedly a lot of analytical and empirical work must be done from within these different approaches, and Besley's book could be a great stimulus for research in the Virginia tradition--- especially on the issue of the selection mechanisms of politics and the principal agent problems that must be confronted. I am going to organize a symposium on the book for the Review of Austrian Economics and also use the book next fal in my Constitutional Political Economy class. I found this book by Besley much more challenging and satisfying than Daron Acemoglu and James Robinson's Economic Origins of Dictatorship and Democracy (see review below).
Last night I gave my last talk on my "2006 European tour" --- a talk to the Hayek Society at the LSE on Liberty and Power in the 20th and 21st Century in Economics and Public Policy. Thanks to Dominique Lazanski for all her work with the Hayek Society and for organizing both my discussion group and my public lecture.
I return to the US on Friday morning. I have had a very productive time here at the LSE. Here are some of the reviews and papers I wrote while in residence here at the LSE.
Comments and criticisms are of course welcomed.
I want to thank Tim Besley of STICERD and Toby Baxendale for giving me this opportunity to be the 2006 Hayek Fellow and visit the LSE for a second time in this capacity. I also want to thank Angela Swain and also Sue Coles for making the environment at the LSE so comfortable and friendly for visitors.