The Cambridge series on the Political Economy of Institutions and Decisions is built around attempts to answer two central questions: How do institutions evolve in response to individual incentives, strategies, and choices, and how do institutions affect the performance of political and economic systems? The scope of the series is comparative and historical rather than international or specifically American, and the focus is positive rather than normative.

An earlier volume of essays on the state of the field in this series, Perspectives on Positive Political Economy, mainly addressed organizational development. Now, Banks and Hanushek have assembled an exciting collection of papers in which formal theories of political economy are applied to the interaction between institutions and public policy. The chapters cover regulation, privatization, and the construction of credible property rights in economic transformations, as well as the political economy of economic policy in industrial societies (trade policy, macro policy, and budget policy). All of these are significant areas where politics and markets – or political and economic forces – interact. Each of these chapters summarizes a recent research program, integrating a variety of approaches and findings while pointing out the need and direction for future research. Additionally, two chapters address theoretical developments relating to the role of equilibria in institutional choice. Both of these chapters, one on the political economy of law and the other on institutions more generally, focus on problems of cooperation and coordination, and point the way to rigorous microfoundations for institutional analysis.