Contemporary Theories of Political Economy

One of the contemporary theories to politics that uses economic assumptions in explaining and understanding politics is known as ‘political economy’, or ‘public-choice’ or ‘rational-choice’ theory. It is also called ‘formal political theory’.⁹ It applies rules and assumptions of the economic theory to analyse the behaviour of human beings in a situation of decision-making. It involves decision-making by actors in a situation when various options are available and one option or a combination of them will give maximum return or payoff. This implies rational decision-making or making of a rational choice. Individuals are considered rational actors capable of making economically maximizing or profitable decisions. As such, this approach is based on the rationally self-interested behaviour of actors. Due to its focus on return or payoff or profit maximization, it is also called ‘neo-utilitarianism’.¹⁰

The political economy or rational-choice approach does not concentrate on ideas or history that lies behind political institutions and policies, as has been the case with conventional political studies. It focuses on the incentive that the decision-makers have while deciding. This means how actors will promote their interests when certain choices are available. Rational choice means a choice based not on its apparent rightness or wrongness but whether it is rational and has the effect of giving maximum result. This approach is of particular use in explaining and understanding the behaviours and actions of voters, lobbyists, bureaucrats, politicians, individual decision-makers and interest groups. It is also applied to actions and conduct of the states in international politics where national interests of the states are considered as prime and not other values and ideas.

Two variants of the rational-choice theory have been applied to explain behaviour of different actors and decision-makers. They include: (i) Game Theory and (ii) Political Economy or Public-Choice Theory.