Subjective political economy

Published in New Perspectives on Political Economy

Abstract: We extend the Institutional Possibility Frontier (IPF) — a theoretical framework depicting the institutional trade-offs between the dual costs of dictatorship and disorder (Djankov et al. 2003) — by incorporating the notion of subjective costs. The costs of institutional choice are not objectively determined or chosen by society; they are subjective to the political actor that perceives them. Our methodologically individualist approach provides a new, highly adaptable extension of the IPF enabling examination of the political bargaining process between dispersed actors, the bounds and evolution of institutional innovation and discovery, and follower-leader dynamics in long-run institutional changes. Our new Subjective Institutional Possibility Frontier (SIPF) helps to integrate ideas into the economics of political systems, creating the foundations for a more subjective political economy.