Limits to Institutional Reforms

The essay draws on the theory of (macro)economic policy, as it has evolved, to discuss implicit policy determinism in the new economics of institutions. The extension of rational‐choice methods to new levels of analysis, such as micropolitics, macropolitics, political macroeconomics, and microfoundations of cooperation, has apparently reduced the policy choice set and diminished the role of experts. All outcomes reflect constrained maximization by rational agents. The essay argues, however, that scarcity of knowledge leads to incomplete and variable policy models, and that competition among policy models creates a role for experts in social change.