Purpose: Contemporary theory in political science and economics increasingly emphasizes the role of institutions. In Central and Eastern Europe, meanwhile, institutions have seen an unprecedented degree of experimentation, reform and variation since 1989. This course will integrate recent theoretical developments with contemporary case studies drawn primarily from the region. Emphasis will be placed upon the political and economic consequences of the choice of institutions, and upon the politics of institutional design. The course will focus on five topics: central planning, simultaneous political and economic transitions, macroeconomic stabilization, privatization and property rights, and the politics of regulation.

• Students are expected to come to class prepared to discuss the assigned material and participate actively.
• Each student will write a 20-30 page empirical research paper that tests a hypothesis about the politics of economic reform. A draft of the paper is due Wednesday, April 23, at 1:00; the revised paper is due April 29.
• In some weeks, one or more of the students will make a brief (fifteen minute maximum) presentation of one of the more technical articles, marked in the syllabus by an asterisk (*), and then answer questions. Imagine that the paper is your own work, and you are presenting it at a conference.
• Each student will present his or her paper orally on April 15 or 22, and participate in discussion of all of the papers. The purpose is to offer constructive criticism that will help the authors to revise their work.

Prerequisites: This is a graduate course, but undergraduates with exceptional preparation in economics may be admitted. Other undergraduates should consider taking PSC 271 instead.

OMRI: In addition to assigned readings, students are encouraged to regularly read RFE/RL reports on the former Soviet Union and Eastern Europe, and JRL reports on Russia, which are distributed five days per week by e-mail. These are some of the best sources available in English, and there is no charge for either service.

The Political Economy of Reform in Central and Eastern Europe

I. Theoretical Toolbox

II. The Setting

A. Central planning

B. Simultaneous political and economic transitions

III. The Politics of Property Rights

A. Contracts, courts and property rights

B. Privatization

IV. Macroeconomic Stabilization

A. Credibility and central banks

B. Elections and political business cycles

C. Democracy, reform and the status quo

V. Distributive politics

A. Regulation and capture

B. Redistribution

• Gary J. Miller, Managerial Dilemmas: The Political Economy of Hierarchy, (Cambridge: Cambridge Univ. Press, 1992).
• Janos Kornai, The Socialist System, (Princeton: Princeton Univ. Press, 1992).
• Adam Przeworski, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America, (New York: Cambridge Univ. Press, 1991).
• Anders Aslund, How Russia Became a Market Economy, (Washington: Brookings: 1995).
• David L. Weimer, ed., The Political Economy of Property Rights: Institutional Change and Credibility in the Reform of Centrally Planned Economies, (Cambridge: Cambridge Univ. Press, 1997).
• Torsten Persson and Guido Tabellini, eds., Monetary and Fiscal Policy, Volume 2: Politics, (Cambridge: MIT Press, 1994).
• Alberto Alesina, Nouriel Roubini, and Gerald D. Cohen, Political Cycles and the Macroeconomy, (Cambridge: MIT Press, 1997).
• Stephan Haggard and Robert Kaufman, The Political Economy of Democratic Transitions, (Princeton: Princeton Univ. Press, 1995).
• Paul Milgrom and John Roberts, Economics, Organization and Management, (Englewood Cliffs: Prentice Hall, 1992).

These books are assigned in whole or substantial part, so it will be convenient to own a copy.

Required:

Paul Milgrom and John Roberts, Economics, Organization and Management, (Englewood Cliffs: Prentice Hall, 1992), Chpts. 1-2.

• Gary J. Miller, Managerial Dilemmas: The Political Economy of Hierarchy, (Cambridge: Cambridge Univ. Press, 1992).

• James E. Alt and Kenneth A. Shepsle, eds., Perspectives on Positive Political Economy, (Cambridge: Cambridge Univ. Press, 1990).
• Jeffrey S. Banks and Eric A. Hanushek, eds., Modern Political Economy: Old Topics, New Directions, (Cambridge: Cambridge Univ. Press, 1995).
• Robert Bates, "Contra Contractarianism: Some Reflections on the New Institutionalism," Politics and Society, 16, No. 2-3 (Sept. 1988): 388-401.
• Jack Knight, Institutions and Social Conflict, (Cambridge: Cambridge Univ. Press, 1992).
• David Kreps, Game Theory and Economic Modeling, (Oxford: Oxford Univ. Press, 1990.
• Douglass C. North, Institutions, Institutional Change and Economic Performance, (Cambridge: Cambridge Univ. Press, 1990).
• Kenneth Shepsle, "Studying Institutions: Some Lessons from the Rational Choice Approach," Journal of Theoretical Politics 1, No. 2 (1989): 131-47.

• Janos Kornai, The Socialist System, Chpts. 7-12, pp. 110-301.
• Paul Milgrom and John Roberts, Economics, Organization and Management, (Englewood Cliffs: Prentice Hall, 1992), Chpts. 3-4.
• Martin Weitzman, "The 'Ratchet Principle' and Performance Incentives," Bell Journal of Economics, Vol. 11, No. 1 (Spring, 1980), pp. 302-8.
• *Jean-Jacques Laffont and Jean Tirole, A Theory of Incentives in Procurement and Regulation (Cambridge: MIT Press, 1993), Chpt. 1 (pp. 53-106).

• Ed A. Hewett, Reforming the Soviet Economy: Equality versus Efficiency, (Washington: Brookings, 1988).
• Alec Nove, The Soviet Economic System, (London: George Allen & Unwin, 2nd ed., 1977, 1984).
• Randall Stone, Satellites and Commissars: Strategy and Conflict in the Politics of Soviet-Bloc Trade, (Princeton: Princeton Univ. Press, 1996).

• Joel Hellman, "Winners Take All: The Politics of Partial Reform in Post-Communist Transitions." World Politics 50, No. 2 (January, 1998).
• Adam Przeworski, Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America, (New York: Cambridge Univ. Press, 1991).
• Ronald I. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy, (Baltimore: Johns Hopkins Univ. Press, 1991), Chpt. 1.
• Anders Aslund, How Russia Became a Market Economy, (Washington: Brookings: 1995), Chpts. 1, 3.

• Charles Lindblom, Politics and Markets: The World's Political-Economic Systems, (New York: Basic Books, 1977).
• G. O'Donnell and P. C. Schmitter, Transitions from Authoritarian Rule: Tentative Conclusions about Uncertain Democracies.

• Douglas North and Barry Weingast, "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History, 69 (1989), 803-32; also in Torsten Persson and Guido Tabellini, eds., Monetary and Fiscal Policy, Volume 1: Credibility, (Cambridge: MIT Press, 1994): 311-43.
• John Ferejohn, "Law, Legislation, and Positive Political Theory," in Jeffrey S. Banks and Eric A. Hanushek, eds., Modern Political Economy: Old Topics, New Directions, (Cambridge: Cambridge Univ. Press, 1995), Chpt. 7.
• Milgrom and Roberts (1992), Chpts. 5-6.
• Thomas F. Remington, Politics in Russia (New York: Addison-Wesley Longman, 1999), Chpt. 7.
• Liam Halligan and Pavel Teplukhin, "Investment Disincentives in Russia." Communist Economies and Economic Transformation 8, No. 1 (1996): 29-51.
• James Watson, "Foreign Investment in Russia: The Case of the Oil Industry," Europe-Asia Studies 48, No. 3 (1996): 429-55.
• David Newman and David L. Weimer, "The Credibility of the PRC Commitment to a Market Economy in Hong Kong: Hypotheses and Evidence," Economics and Politics 9 (3) (November 1997): 251-80.

• Kreps, David. "Corporate Culture and Economic Theory," in James Alt and Kenneth Shepsle, ed., Perspectives on Positive Political Economy. (New York: Cambridge Univ. Press, 1990).
• Williamson, Oliver. The Economic Institutions of Capitalism. (New York: MacMillan, 1987), Chpts. 1-4.
• Barry Weingast, "Constitutions as Governance Structures," Journal of Institutional and Theoretical Economics, 149 (1993), No. 1.
• Milgrom and Roberts, Economics, Organization and Management, (Englewood Cliffs: Prentice Hall, 1992), Chpt. 9.

• David L. Weimer, ed., The Political Economy of Property Rights: Institutional Change and Credibility in the Reform of Centrally Planned Economies, (Cambridge: Cambridge Univ. Press, 1997), Chpts. 1-9, 12.
• Michael McFaul, "State Power, Institutional Change, and the Politics of Privatization in Russia," World Politics 47 (January 1995): 210-43.
• Aslund, How Russia Became a Market Economy, Chpt. 7.
• Harvey B. Feigenbaum and Jeffrey R. Henig, "The Political Underpinnings of Privatization: A Typology." World Politics 46 (2) (1994): 185-208.
• Tirole, Jean. "Privatization in Eastern Europe: Incentives and the Economics of Transition." in Olivier Jean Blanchard and Stanley Fischer, eds., NBER Macroeconomics Annual. (Cambridge: MIT Press, 1991).
• Clarke, Simon, P. Fairbrother, V. Borisov and P. Bizyukov. "The Privatization of Industrial Enterprises in Russia: Four Case-studies." Europe-Asia Studies, 46 (2), (1994): 179-214.

• Laffont and Tirole (1993), Chpt. 17, "Privatization and Incentives."
• Lipton, David, and Jeffrey Sachs, "Privatization in Eastern Europe: The Case of Poland," Brookings Papers on Economic Activity 2 (1990): 293-341.
• O. Blanchard, M. Boycko, M. Dabrowski, R. Dornbusch, R. Layard and A. Shleifer, Post-Communist Reform: Pain and Progress, (Cambridge: MIT Press, 1993), Chpts. 3, 5.
• Brom, Karla, and Mitchell Orenstein. "The Privatized Sector in the Czech Republic: Government and Bank Control in a Transitional Economy." Europe-Asia Studies 46:6 (Dec. 1994): 893-928.
• Comisso, Ellen. "Legacies of the Past or New Institutions? The Struggle over Restitution in Hungary." Comparative Political Studies, 28 (2), (July 1995).
• Dobek, Mariusz Mark. "Privatization as a Political Priority: The British Experience." Political Studies 41 (March 1993): 20-36.
• Katz, Barbara G., and Joel Owen. "Privatization: Choosing the Optimal Time Path." Journal of Comparative Economics 17, (1993): 715-36.
• Swann, Dennis. The Retreat of the State: Deregulation and Privatization in the UK and US. (Ann Arbor: Univ. of Michigan Press, 1988).
• Vickers, John and George Yarrow. Privatization: An Economic Analysis. (Cambridge: MIT Press, 1988).
• Zahariadis, Nikolaos. Markets, States, and Public Policy: Privatization in Britain and France. (Ann Arbor: Univ. of Michigan Press, 1995).

• Torsten Persson and Guido Tabellini, eds., Monetary and Fiscal Policy, Volume 1: Credibility, (Cambridge: MIT Press, 1994), Introduction, Chpts. 4*, 9.
• Milgrom and Roberts (1992), Chpt. 7.
• Susanne Lohmann. "Federalism and Central Bank Independence: The Politics of German Monetary Policy, 1957-92." World Politics 50 (3) (April 1998): 401-46.
• Beth A. Simmons. "Rulers of the Game: Central Bank Independence during the Interwar Years." International Organization 50 (3) (Summer 1996): 407-44.
• Daniel S. Treisman. "Fighting Inflation in a Transitional Regime: Russia's Anomalous Stabilization." World Politics 50 (2) (January 1998): 235-65.
• Randall W. Stone, "The IMF, the Market, and Credibility: A Formal Model with Empirical Tests on 27 Post-Communist Countries," prepared for the Annual Meeting of the APSA, Boston, Massachusetts, September 3-6, 1998.

• Francesco Giavazzi and Marco Pagano. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility." European Economic Review 32 (1988): 1055-1082.
• Alberto Alesina and Vittorio Grilli. "The European Central Bank: Reshaping Monetary Politics in Europe," in Canzoneri, M., V. Grilli, and P. Masson, eds., Establishing a Central Bank: Issues in Europe and Lessons from the US. (Cambridge: Cambridge Univ. Press, 1992).
• Peter A. Hall and Robert J. Franzese, Jr. "Mixed Signals: Central Bank Independence, Wage Bargaining, and European Monetary Union." International Organization 52 (3) (Summer 1998): 505-36.
• Geoffrey Garrett, "Capital Mobility, Trade, and the Domestic Politics of Economic Policy," in Robert O. Keohane and Helen V. Milner, eds., Internationalization and Domestic Politics, (New York: Cambridge Univ. Press, 1996).

• Alberto Alesina, Nouriel Roubini, and Gerald D. Cohen, Political Cycles and the Macroeconomy, (Cambridge: MIT Press, 1997).
• Torsten Persson and Guido Tabellini, eds., Monetary and Fiscal Policy, Volume 2: Politics, (Cambridge: MIT Press, 1994), Chpt. 6*.
• Aslund, Chapter 6.
• George Blazyca and Ryszard Rapacki, "Continuity and Change in Polish Economic Policy: The Impact of the 1993 Election." Europe-Asia Studies 48, No. 1 (1996): 85-100.

• Alberto Alesina and Howard Rosenthal, Partisan Politics, Divided Government, and the Economy, (Cambridge: Cambridge University Press, 1995).
• Przeworski, Adam. "Public Support for Economic Reforms in Poland." Comparative Political Studies, 29, No. 5 (October 1996).
• Buendia, Jorge. "Economic Reform, Public Opinion and Presidential Approval in Mexico 1988-1993." Comparative Political Studies, 29, No. 5 (October 1996).
• O. Blanchard, M. Boycko, M. Dabrowski, R. Dornbusch, R. Layard and A. Shleifer, Post-Communist Reform: Pain and Progress, (Cambridge: MIT Press, 1993), Chpt. 2.

• Haggard, Stephan and Robert Kaufman, The Political Economy of Democratic Transitions, (Princeton: Princeton Univ. Press, 1995), Intro., Chpts. 5-end.
• Torsten Persson and Guido Tabellini, Monetary and Fiscal Policy, Volume 2: Politics, (Cambridge: MIT Press, 1994), Chpts. 14, 15*, 16.
• McKinnon, Chpt. 6, "Macroeconomic Control during Disinflation: Chile versus South Korea."

• *Laffont and Tirole (1993), Chpt. 11.
• Aslund, How Russia Became a Market Economy, (Washington: Brookings: 1995), Chapters 5, 8.
• Milgrom and Roberts, Chpt. 8.
• McKinnon, Chpt. 7, "Macroeconomic Instability and Moral Hazard in Banking," pp. 84-91.
• David P. Baron, "The Economics and Politics of Regulation," in Banks and Hanushek.
• Pablo T. Spiller, "Regulatory Commitment and Utilities' Privatization," in Banks and Hanushek.

• Robert H. Bates, Markets and States in Tropical Africa: The Political Basis of Agricultural Policies, (Berkeley: Univ. of Calif. Press, 1981).
• Paul Milgrom and John Roberts, "Bargaining Costs, Influence Costs and the Organization of Economic Activity," in James Alt and Kenneth Shepsle, eds., Perspectives on Positive Political Economy, (New York: Cambridge Univ. Press, 1990).
• Moe, Terry, "The Politics of Structural Choice: Toward a Theory of Public Bureaucracy," in O. Williamson, ed., Organization Theory: From Chester Barnard to the Present and Beyond, (New York: Oxford Univ. Press, 1990).
• Randall Calvert, Matthew McCubbins and Barry Weingast, "A Theory of Political Control and Agency Discretion," American Journal of Political Science, 33, No. 3 (Aug. 1989): 588-611.
• Jeffrey Banks and Barry Weingast, "The Political Control of Bureaucracies under Asymmetric Information," American Journal of Political Science, 36, No. 2 (May 1992): 509-24.
• Mathew McCubbins and Schwartz, "Congressional Oversight Overlooked: Police Patrols versus Fire Alarms," American Journal of Political Science 28, (Feb. 1984): 165-79.
• Terry Moe, "The New Economics of Organization," American Journal of Political Science 28, (1984): 739-77.

• Torsten Persson and Guido Tabellini, Monetary and Fiscal Policy, Volume 2: Politics, (Cambridge: MIT Press, 1994), Chpts. 8*, 9, 12, 13*.
• Peter Evans, "The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change," in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment (Princeton: Princeton Univ. Press, 1992), Chpt. 3.