Why Be Robust? The Contribution of Market Process Theory to the Robust Political Economy Research Program

Nick Cowen

The purpose of this chapter is to show how the robust political economy (RPE) framework can provide a unique perspective to political theory. The premise of RPE is that institutions should be evaluated by comparing their capacities to solve knowledge and incentive problems. I argue that these problems are also important concerns for political theorists who would like their research to reflect realistic challenges to economic cooperation. This raises a question: Through what conceptual framework should different institutions be compared? My case is that a combined application of Austrian market process theory and public choice is the most promising way of comparing the robustness of institutions. This combination offers an enriched account of individual behavior in political settings compared to traditional public choice analysis and neoclassical economic approaches to institutional analysis.

The structure of this chapter is as follows. I begin with a vignette of an experience playing a prisoners’ dilemma game in a behavioral economics laboratory that illustrates some limits of formal rational choice analysis. I link this description to Vincent Ostrom’s critical appraisal of the public choice research program, where he proposed absorbing Austrian market process insights into the analysis of individual behavior in collective decision settings. I then describe my approach to RPE as such a combination, its characteristic features, and its underlying assumptions.

My approach highlights the epistemic properties of market institutions as opposed to their more commonly recognized role in aligning individual incentives with socially beneficial outcomes. In order to do this, I make use of Kirzner’s (1987, 46; 2000, 264) two levels of spontaneous order analysis, codified by Boettke (2014) as the market process and the market order. This approach has parallels with Buchanan’s distinction between constitutional and post-constitutional arenas of political exchange (Boettke 2014, 243; Buchanan and Tullock 1999) but recognizes in greater depth the epistemic barriers to constitutional formation (Pennington 2015).

This division between the market process and the market order allows us to differentiate accounts of agents coordinating within a given institutional framework of private property and voluntary exchange, and the much more challenging collective task agents face when establishing that protective framework in the absence of an informative price mechanism. This explains how RPE can extend neoclassical accounts of the performance, development, and failure of political institutions. I argue that this epistemic account offers a wider role for normative ideas, including ideas in political theory, as mechanisms for understanding each other’s behavior and coordinating modes of social cooperation, than other more incentive-led or materialist accounts of institutions. I show what this perspective can contribute to Rawls’s contractarian theory of justice and to realism in political theory.

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