Political Economy Cheat Sheet

The core ideas of Political Economy distilled into a single, scannable reference — perfect for review or quick lookup.

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Quick Reference

Rent-Seeking

The practice of manipulating public policy or economic conditions to increase profits without creating new wealth. Actors expend resources to gain special privileges, subsidies, or monopoly rights from government rather than engaging in productive economic activity.

Institutional Economics

A framework analyzing how institutions, defined as the formal rules (laws, constitutions) and informal constraints (norms, customs) of a society, shape economic behavior and determine long-run economic performance.

Public Choice Theory

The application of economic methods, particularly rational choice and game theory, to the study of political behavior. It treats politicians, bureaucrats, and voters as self-interested actors and analyzes how their incentives shape policy outcomes.

Collective Action Problem

A situation in which individuals would benefit from cooperating but face incentives to free-ride on others' efforts, leading to outcomes that are suboptimal for the group as a whole. This concept is central to understanding why public goods are underprovided and political mobilization is difficult.

Comparative Advantage and Trade Policy

The principle that nations benefit from specializing in the production of goods for which they have the lowest opportunity cost, and the political dynamics that determine whether governments adopt free trade or protectionist policies.

Political Business Cycle

The theory that incumbent politicians manipulate fiscal and monetary policy to create favorable economic conditions before elections, such as boosting spending or lowering interest rates, leading to cyclical patterns in economic performance tied to electoral timing.

Varieties of Capitalism

A framework distinguishing between liberal market economies (like the United States and United Kingdom) that rely on market mechanisms for coordination, and coordinated market economies (like Germany and Japan) that depend on strategic interaction among firms, banks, and labor unions.

Extractive vs. Inclusive Institutions

A distinction drawn by Acemoglu and Robinson between institutions designed to concentrate power and wealth in the hands of a narrow elite (extractive) and those that distribute political power broadly and protect property rights for all citizens (inclusive).

Hegemonic Stability Theory

The theory in international political economy that the global economic order is most stable when a single dominant power (hegemon) provides public goods such as open trade, a reserve currency, and security, and that the decline of hegemony leads to economic instability.

The Resource Curse

The paradox that countries rich in natural resources, particularly oil and minerals, often experience slower economic growth, weaker democratic institutions, and higher levels of corruption than resource-poor countries, due to the political dynamics that resource wealth creates.

Key Terms at a Glance

Political Economy:The interdisciplinary study of the interaction between political institutions and economic systems, analyzing how government policies shape markets and how economic forces influence political outcomes.

Rent-Seeking:The expenditure of resources to manipulate policy or economic conditions to redistribute wealth toward oneself without creating new productive value.

Public Choice Theory:A school of thought applying economic analysis (rational choice, utility maximization) to political decision-making by voters, politicians, and bureaucrats.

Institutions:The formal rules (constitutions, laws, property rights) and informal constraints (norms, conventions, customs) that structure political and economic interactions in a society.

Collective Action Problem:A situation in which rational individuals fail to cooperate for mutual benefit because each has an incentive to free-ride on others' efforts.

Hegemony:The dominance of one state or social group over others, particularly in shaping the rules, norms, and institutions of the international economic order.

Comparative Advantage:The principle that a country benefits from specializing in producing goods for which it has the lowest opportunity cost, forming the basis for arguments in favor of free trade.

Neoliberalism:A political-economic ideology emphasizing free markets, deregulation, privatization, fiscal austerity, and free trade as the best paths to economic growth.

Dependency Theory:A theory that underdevelopment in poor countries results from their structural dependence on wealthy core nations, which extract surplus through unequal trade and investment.

Mercantilism:An early modern economic doctrine holding that national power is maximized by accumulating precious metals through trade surpluses, export promotion, and import restriction.

Washington Consensus:A set of ten policy prescriptions (fiscal discipline, tax reform, trade liberalization, privatization, deregulation, etc.) promoted by Washington-based institutions for developing countries in the 1980s and 1990s.

Embedded Liberalism:The post-WWII compromise in which states agreed to open international markets while retaining domestic policy space for social protection and full employment.

Resource Curse:The paradox that countries rich in natural resources, especially oil and minerals, often experience slower growth, higher corruption, and weaker governance than resource-poor countries.

Regulatory Capture:A situation in which government regulatory agencies come to serve the interests of the industries they regulate rather than the public interest.

Political Business Cycle:The theory that incumbent politicians manipulate macroeconomic policy to create favorable conditions before elections, generating economic cycles tied to electoral timing.

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