Subjective political economy

Ideas fit poorly into the economics of political systems. This paper provides a new, highly-adaptable framework for analysing the role of ideas in political change. Starting with Djankov et al's (2003) institutional possibility frontier, in which institutional choice is depicted as a trade-off between disorder costs and dictatorship costs, we observe that costs are subjective to the political actor that perceives them. Long-run institutional changes can be seen as the result of perceived changes in these costs. The paper then looks at political bargaining between actors with different subjective institutional possibility frontiers, how subjective costs help us understand institutional innovation, and the role of uncertainty and ignorance in creating follower-leader dynamics in political systems. By integrating ideas into the economic analyses of politics we create the foundations of a subjective political economy.