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Robust political economy (RPE) is a research program that combines insights from Austrian economics and public choice to evaluate the performance of institutions in cases of limited knowledge and limited altruism, or “worst-case scenarios.” Many critics of RPE argue that it is too narrowly focused on the bad motivations and inadequacies of social actors while smuggling in classical liberal normative commitments as part of a purported solution to these problems. This chapter takes a different tack by highlighting the ways that RPE as currently understood may not be robust against particularly bad conduct. It suggests that depending on the parameters of what constitutes a worst-case scenario, classical liberal institutions, especially a minimal state, may turn out to be less robust than some conservative or social democratic alternatives.

With product labelling has already been in vogue in the developed countries to distinguish products produced by child labour from those that are “child labour free” to influence the buyers’ choice, one might be tempted to suggest that such labels should contain more information regarding the extent to which child labour has been used in a product. But, as this chapter shows, if labels contain such information and the buyers react to this by offering increasingly lower prices for the varieties containing more child labour per unit of output, it may do more harm than helping the cause. That is, a trade sanction against child labour content of a good exported by developing countries may not be a good idea since it may, in fact, raise the incidence of child labour in those countries. This result is established in a simple general equilibrium framework where parents are altruist.

This chapter addresses commentary about constitutional law and politics in this current era of a conservative domination of the judiciary.¹ Its primary concern is the different ways in which a working majority on the Court and its judiciary of appointees by Presidents Reagan, George H. W. Bush, and George W. Bush might be conservative,² and the different ways in which domination might take place.³ The frame for the chapter is what I call an “indifference thesis” for analyzing constitutional law and politics. Stated boldly, the thesis is that there should be a commentary distinguished by an interpretive attitude that distrusts, and intentionally resists, analysis based on preconceived notions about the strengths and weaknesses of any constitutional law and politics, be it conservative or left-liberal.⁴ Perhaps, to many readers, an indifference thesis for commentary appears methodologically odd, if not politically perverse. Therefore, the first order of business is to try to make the thesis less odd and perverse by explaining its provenance and attributes.⁵

Laboratory studies of social interaction have revealed a wide range of phenomena that are difficult to explain using standard economic models. For example, people will often sacrifice their own earnings in order to be generous, cooperative, punitive, and retributive in interactions with anonymous strangers. “Behavioral” models that redefine agents’ preferences attempt to provide an account of these phenomena as reflecting a “taste for fairness” or altruism, aversion to inequality, concern about others’ beliefs, and so on. Such models either fail to account for the rich sensitivity of actions to context or in allowing for rich context-dependence, these models ultimately substitute description for explanation. Hayek’s work provides a foundation for thinking about how to explain these phenomena, by conceiving of people as both purpose-seeking (as in economic models) and rule-following. Decisions are shaped both by material interests and by a normative framework that is evoked by context and helps people decide what one ought to do in a particular situation. The implication of this approach is that rather than trying to understand heterogeneity across individuals in terms of preferences, experimenters should instead try to understand heterogeneity across contexts in terms of the rules and norms that operate in the background and guide or constrain people’s purpose-seeking tendencies. What economics needs, then, is a theory of how and why these rules and norms vary with context as they do.

This paper suggests to combine different kind of “other-regarding” preferences as an approach to fair behavior which is observed in controlled experiments. We assert that participants in two-person experiments have a good will capital which may be described by altruistic preferences. These preferences guide a large fraction of participants when they have to make distributional choices in one-stage games. We further show that in games with more than one stage the previous action of the other person may cause reciprocal feelings in addition to the altruistic preferences. A friendly (unfriedly) act of the other person may increase (decrease) the good will capital of the participants. Upon these findings, we conclude that a combination of altruism and reciprocity is able to describe the variety of behavior in several experiments despite their differing strategic context.

This chapter proposes a cultural perspective towards understanding the nature and outcomes of governance reforms. The argument is that “culture” is a promising, though somehow neglected, explanatory factor. There are three major roles that the cultural factor can play. First, governmental culture acts as the intervening variable. Many reform attempts around the world failed because governmental culture obstructed reform success by producing perverse or ugly reform hybrids. When reform innovations were chosen, the cultural factor was not seriously taken into consideration. Second, governmental culture can become the dependent variable. The basic objective of governance reform is to ultimately change the governmental culture of the society. Therefore, reform cannot become successful until the reform initiatives eventually change the basic cultural traits of government. Since changing governmental culture takes a long time, there is a feeling of hopelessness in conducting reform. The more reforms are introduced, the more things remain the same. Third, governmental culture performs the role of an independent variable that affect the processes and outcomes of governance reform. There are other competing independent variables in the explanatory equation, and the cultural factor becomes a less visible factor for political scientists who prefer to highlight other variables, such as power and institutions.

It is commonly believed that banks are in special need of regulation to prevent financial crises, and the recent sub-prime crisis would tend to support such views. Yet it is clear that a series of perverse incentives exist in the banking industry. Incentives for bankers to take on too much risk lead to financial crises, and then a lack of a bankruptcy process for large financial institutions lead to massive taxpayer bail-outs. This chapter canvasses the issues surrounding the sub-prime crisis and explores arguments relating to regulation and the political economy of the recent crisis. As long as the political cost-benefit of having inefficient banking regulation dominates an economic cost-benefit of having efficient regulation, we can expect that perverse incentives will remain and financial crises will be a regular feature of the economic landscape.

Government agencies have endeavored, with limited success, to improve the methodological consistency of regulatory benefit–cost analysis (BCA). This paper recommends that an independent cohort of economists, policy analysts and legal scholars take on that task. Independently established “best practices” would have four positive effects: (1) they would render BCAs more regular in form and format and, thus, more readily assessable and replicable by social scientists; (2) improved consistency might marginally reduce political opposition to BCA as a policy tool; (3) politically-motivated, inter-agency methodological disputes might be avoided; and (4) an independent set of “best practices” would provide a sound, independent basis for judicial review of agency BCAs.