The Contractual Architecture of Public Policy: A Critical Reconstruction of Lowi's Typology

Abstract

We outline a theory of public policy using our transaction space model of contractual analysis. This approach is based on transaction cost economics, game theory, and the contractual paradigm. It treats government activities, including statutes and the organizations that administer them, as long-term contracts negotiated to economize on the costs of decision making. We return to Theodore Lowi's typology of public policies--although our construction departs from its underlying assumptions in numerous ways--to answer two questions. First, how does government come to be involved in some coercive activities and not others? Second, why does Lowi's typology appear to fit some policies so well and to be inadequate for others? According to our theory, demand for government intervention arises when people cannot resolve private problems of coordination, division, and defection, each a distinct dimension of transaction space. Lowi's typology fits unidimensional problems best. Multidimensional problems are more complex but consistent with the model.