The Review of Austrian Economics, 17:4, 447–451, 2004.
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Robust Institutions: The Logic of Levy?
Department of Economics, Franklin and Marshall College, Lancaster, PA 17604, USA
Abstract. Levy (2002) argues that J. M. Buchanan’s worst-case philosophy of constitutional political economy
and J. W. Tukey’s worst-case philosophy of mathematical statistics are analogous. Levy’s analogy, however, is
problematic. Institutions are only contingently robust. Worst-case political economy is simply best-case thinking
in another guise.
KeyWords: robust, institutional analysis, public choice
JEL classiﬁcation: c4, b1, h0.
David M. Levy (2002) translates “worst-case” thinking in political economy into the “lingua
franca of robust statistics” (Levy 2002:131). Levy provides a helpful taxonomy for ranking
political institutions (or more accurately, models of political institutions/sets of rules of the
game) according to their “robustness” properties. The following picture (Levy 2002:133)
represents the performance of two institutions (or models of sets of rules of the game) as a
function of the posited state of the world (or theory of the state of the world).
When the state of the world (or supposition of the model) is γ , institution 1 generates a
greater amount of the metric “good stuff” (Levy’s terminology) than does 2. If γ holds, then
1 outperforms 2 (in terms of the desired metric). To illustrate Levy’s point, let γ represent
public-spirited socialist planners and 1 represent market socialism (see, e.g., Lange 1964
, Lerner 1944). Planning (1) is superior to markets (2) when planner agent-type
is public-spirited. Weaken the supposition of public-spiritedness (γ ), however, thereby
modeling planner agent-type as more akin to homo economicus, and voila: deadweight losses
are pervasive (see, e.g., Levy 1990, Shleifer and Vishny 1992). Institution 2 outperforms
institution 1 when γ does not hold: planners readily exploiting the fact that socialist planning
transforms the entire economy into one gigantic monopoly.
Robust institutions (2) put
a bound on the loss of “good stuff” resultant upon supposition γ ’s failure (134). Levy
(2002:131) notes, “von Neumann’s minimax loss approach to decision making is absolutely
central to robust [worst-case] thinking.”
(maximax) leads us to favor
1 over2;the possible failure of γ simply does not impact on our choice.
thinking (minimax), however, necessitates that we take the possible failure of γ rather more
I thank David M. Levy for useful comments and discussion.