Explaining Orbán: A Political Transaction Cost Theory of Authoritarian Populism

Abstract

Based on the theory of transaction cost economics, the paper argues that by vertically organizing political exchange, populist regimes reduce market-type political transaction costs—bargaining, enforcement and information costs—of democracy. However, management-type political transaction costs—organizational costs, partly stemming from corruption—rise as populists in power leverage government control through hierarchically organized clienteles. Transaction cost economics suggest that a shift from democratic towards authoritarian populist regimes occurs when formal and informal political institutions prove unable to maintain horizontal political exchange, and demand for increased government discretion grows. This is demonstrated on Viktor Orbán’s authoritarian populist regime in Hungary.