Introduction

The economic analysis of constitutions is a fledgling research program also known as “constitutional economics” or “constitutional political economy.” It has broadened the standard research program of economics: standard economics is interested in studying choices within rules, thus assuming rules to be exogenously given and fixed. Constitutional economics broadens this research program by analyzing the choice of rules using the standard method of economics, that is, rational choice. Constitutional political economy (CPE) is part of new institutional economics (NIE) because constitutional rules are institutions. They can be considered the most basic layer of formal institutions.

James M. Buchanan, one of the founders of the new research program, defines constitutions as “a set of rules which constrain the activities of persons and agents in the pursuits of their own ends and objectives” (Buchanan 1977, p. 292). Defined as such, quite a few rule systems could be analyzed as constitutions: a firm's partnership agreement as well as the statute of a church. This chapter focusses, however, on the constitution of states.

There are two broad avenues in the economic analysis of constitutions: (1) the normative branch, which is interested in legitimizing the state and actions of its representatives; it is thus interested in identifying conditions in which the outcomes of collective choices can be judged as “fair” or “efficient”; and (2) the positive branch, which is interested in explaining: (a) the (economic) effects of alternative constitutional rules; and (b) the emergence and modification of constitutional rules.