Work detail

An Economic Theory of Rules

Author: Mgr. Adam Geršl
Year: 2001 - summer
Leaders: † prof. Ing. Karel Kouba DrSc.
Work type: Economic Theory
Language: Czech
Pages: 105
Awards and prizes: Karel Engliš Award by Charles University Rector for the best diploma thesis
M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance and for an extraordinarily good masters diploma thesis
Abstract: In this master thesis a theoretical basis for the analysis of rules in economic and political markets is built. The theoretical background of the analysis is constitutional political economy, which is a new research programme found by the Nobel Prize Winner James Buchanan. Other theoretical approaches, especially public choice theory and theory of interest groups are also used.
Regarding the content, the thesis starts with an introductory chapter, which presents the constitutional political economy as a theory about rules. A methodological chapter follows which deals with approaches to the analysis of individual. The methodological position taken here can be described as purely individualistic. A model homo oeconomicus is found to be an appropriate model for analysis. The first analysis regards individual rules, which can be adopted by an individual in order to avoid calculation in every case or in order to limit the behaviour that can have negative effects on him in the future.
The main part of the theory deals with social rules which individuals adopt for their mutual interactions because of the benefits the rules can provide. The emergence of rules in reality is explained conceptually from the anarchy, which is not Pareto efficient if the individual behaviour exerts external costs on other individuals. Rational individuals unanimously adopt rules that will limit their behaviour and reach then the Pareto superior position. But rules abiding have significant features of prisoner's dilemma so rational individuals will establish protective state which will be given the right and power to enforce established rules.
Only after the basic rules and property rights are established and enforced, bilateral and multilateral trades in markets can emerge. These activities can also exert external costs on other individuals so rational individual will adopt formal rules for collective decisions which minimise expected external and organisational costs. The rules define also productive state with the purpose of making collective decisions, which do not need to be made unanimously. Consensual collective decision is nevertheless needed to renegotiate basic rules, rights and organisational and decision rules of the productive state.
Special emphasis is put on today's institutional arrangements of economic and political markets and productive state. Based on the results of public choice theory and theory of interest groups, the main defects of political markets are identified and their role in determination of basic rules and rights discussed. Some thesis about the influence of interest groups on the rule making in political markets are presented and empirically discussed. For the empirical discussion the case of Czech transition economy is chosen because of recent change of all relevant formal rules.
Downloadable: Diploma Thesis - Geršl


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