Introduction

How should the economic efficiency of a political-economic equilibrium be evaluated? What is the relationship between the underlying institutional structure, and in particular the constitutional order, and the efficiency of the resulting political-economic equilibrium? These questions are at the core of normative political-economic analysis. Besides the general interest in evaluating political-economic equilibria, answers to such questions are also prerequisites for prescriptive analysis.

Any attempt at evaluating political-economic equilibria must commence with the choice of appropriate evaluation criteria. The principal criterion adopted in the present analysis is the one often used in cost-benefit analysis (e.g., Mishan 1976) and policy analysis (e.g., Gardner 1987a; Zerbe 2007; Just et al. 2008). Essentially, this evaluation approach expresses the effects of public intervention in terms of consumer surpluses, producer surpluses, and “willingness to pay” measures.

According to the seminal work of Tinbergen (1956), public policies regard the economic structure as given and the principal political problem is to select the policy regime and values of policy instruments that solve the underlying political-economic problem; that is, to obtain the desired policy target. Note that in the context of such policies the term “policy regime” refers to the combination of policy instruments employed in the intervention. In contrast, other policies seek to alter the economic structure itself; that is, to modify the various institutions (laws, property rights, modes of organization, commonly accepted contractual arrangements, etc.). The Tinbergen-type policies will be referred to as quantitative policies whereas those policies that seek to change the economic structure itself will be referred to as structural policies.