Our political economy works like a multi-player game

livemint.com:

There are four main schools of political economy: The normative school with a benevolent policymaker at its centre trying to maximize a social welfare function; public choice theory with its focus on rule making; the Chicago school where policymakers redistribute wealth to maximize a support base; and the transaction cost school where each policy is a ‘play’ in a game where multiple principals try to influence an agent (policymaker) to maximize their own utility. Given our sub-optimal policy making history in the first four decades after 1947, the Indian political economy cannot be said to conform with the normative school model.

One is tempted to shoehorn India into the public choice theory mould, but frequent government failures make this too ambitious. The Chicago school vision, with resources redistributed among hungry factions to shore up political support, perhaps appeals most to our tax-paying bourgeoisie.

This model though ignores institutional features of a country and is not rich enough to capture the dynamics of policymaking in our complex democracy. A more apt characterization of our political economy can be achieved through the lens of Avinash Dixit’s transactions cost model.

While all of us, irrespective of socio-economic group, claim to be victims of poor policymaking, in reality, we usually abet exactly that, since all socio-economic groups view policy as a chance to maximize benefits for themselves. This lends itself to game theoretic analysis.