Understanding Policy Change How to Apply Political Economy Concepts in Practice Cristina Corduneanu-Huci. Alexander Hamilton Issel Masses Ferrer THE WORLD BANK Washington, D.C.
CONTENTS Foreword Acknowledgments Abbreviations xi xiii xv Introduction 1 What Is This Handbook About? 2 A Guide for Reformers, Journalists, and Civil Society Activists 3 The Main Theoretical Narrative and the Guiding Principle of the Handbook. 5 Collective Action: The How To Ch'ange Solution 6 The Rest of This Book 14 Summary 15 1. Political Economy: What It Is and What It Is Not 17 Objectives of Chapter 1 17 Political Economy Analysis, Diagnostics, and Tools 18 Reform Stories: Seeing the World through the Lens of Political Economy 22 Deconstructing and Understanding Poverty Reduction Refornn: ' An Empirical Puzzle 28 The Limits, Perils, and Promises of Political-Economy Analysis 40 Summary 44 PARTI 2. Accountability and Corruption: The What Question Objectives of Chapter 2 What Is Accountability? Common Symptoms of Malfunctioning Institutions: Corruption and Its Relatives Summary 49 51 52 52 62 73
3. The Collective Action Problem in Development: The Why Question 79 Objectives of Chapter 3 81 Collective Action Problems: At the Heart of Development 81 What Are Public Goods? 82 What Factors Inhibit Collective Action? 85 Social Dilemmas of Delivering Public Goods. 88 Identifying and Evaluating Collective Action Problems 91 Game Theory and Collective Action: Modeling Social Dilemmas with Nash Equilibria 95 Summary 98 Exercise 3.1: The Unscrupulous Diner's Dilemma 99 4. Theories and Mechanisms of Political Economy: Institutions and Equilibria 111 Objectives of Chapter 4 113 Institutions, Incentives, and Collective Action 113 Institutional Origins, Stability, and Change 131 Symptoms of Institutional Failure: Lack of Enforcement 140 Modeling the Role of Institutions with Game Theory 144 Summary 146 Exercise 4.1: The Prisoner's Dilemma Game 147 5. Collective Choice and Agenda Setting 157 Objectives of Chapter 5 159 What Is Agenda Setting? : 159 Types of Agenda Setting 163 Agenda Setting as a Strategic Tool for Policy Making: A Note on Positivist and Normative Angles 171 Summary 173 Exercise 5.1: The Agenda-Setting Game *" 174 6. Delegation Problems and the Principal-Agent Relationship 181 Objectives of Chapter 6 183 Delegation 183 The Principal, the Agent, and Their Incentives 186 What Are the Main Technical Features of a Principal-Agent Model? 187 Who or What Will Make Sure That the Agent Complies with the Mandate? Solving Delegation Problems 189 Analyzing Principal-Agent Dilemmas Using Game Theory 193 Understanding Policy Change
Summary 195 Exercise 6.1: The Principal-Agent Game 196 7. Causes and Effects of Information Asymmetries in the Policy-Making Process 207 Objectives of Chapter 7 209 The Political Economy of Information 210 Broader Implications of Information Asymmetries 217 Understanding the Nonlinear Relationship between Information Asymmetries and Pro-Development Collective Action 224 Summary. 229 8. Credible Commitment 233 Objectives of Chapter 8 234 The Problem: Time Inconsistency 234 What Is "Credible Commitment"? 235 Credible Commitment, Collective Action, and Development 241 The Importance of Collective Action-Induced Credible Commitment to Development: What the Data Say 242 Modeling Credible Commitment as a Challenger Game 243 Summary, 244 9. Solutions to Collective Action Problems 247 Objectives of Chapter 9 248 When Do Mobilization and Production of Public Goods Occur? 249 Tools for Solving Collective Action Problems 254 Conceptualizing Leadership, Trust, and Repeated Interaction through Games 264 Summary 266 Exercise 9.1: The Prisoner's Dilemma with Different Time Horizons/Institutional Incentives Game 267 PART II 279 10. How to Conduct Political-Economy Analyses: First Steps 281 Objectives of Chapter 10 282 Who Are the Stakeholders, and How Can Their Preferences Be Mapped? 283 The Role of Institutions 286 The Role of Constraints 287 Contents
Methods and Instruments for Diagnostics and Analysis 288 From Theory to Action 291 Summary 293 Exercise 10.1: The Leadership Game 294 11. Recognizing Opportunity for Policy Change 303 Objectives of Chapter 11 304 Time Frames for Reform: Timing, Sequencing, Pacing, and Maintaining Momentum-- 304 Complementary versus Trade-offs of Different Reform Areas 310 Summary 315 Appendix A: Fundamental Concepts in Game Theory 317 Appendix B: Technical Appendix 321 Appendix C: Political-Economy Concepts in Practice:» Public Procurement Reform in the Philippines 323 Appendix D: Political-Economy Homework Exercises 333 Index. 345 Box 11.1 Political-Economy Analysis: A Practical Checklist 311 Concepts in Practice 2.1 Democratic Institutions, Famines, and Food Shortages- 54 2.2 The Case of Budgetary Decisions in Iran 62 2.3 Prebendalism and Artisanal Gold Mining in the Democratic Republic of Congo. 65 2.4 Clientelism, Ethnicity, and Gender in Benin 67 2.5 The "New Public Management" from New Zealand to the World 73 3.1 Prices of Agricultural Products in Sub-Saharan Africa 92 3.2 Political Parties as Collective Action Problem Solvers 95 4.1 Constitutions and Individual Rights to Public Goods Water Access and Health Care 119 4.2 Water Resource Management Reforms in Zimbabwe 120 4.3 Effects of Electoral Laws on Public Goods in Brazil and Republica Bolivariana de Venezuela 127 4.4 Informal Institutions in China 130 4.5 Labor Regulations in India 133 viii Understanding Policy Change