ABSTRACT
Economic theory has never been particularly successful in modelling the behaviour of the state. This, however, does not mean that economists are not interested in government. Quite the contrary; at least since Adam Smith, the question of the appropriate balance between the invisible hand of the market and the more visible actions of the state has been very much at the centre of the debate on economic policy (Gunnarsson, 1987; Krueger, 1990). This debate has continued up to the present time, with the emphasis by and large on whether state intervention into the market is ‘good’ or ‘bad’ (Lal, 1983, Chapter 1; Killick, 1990, Chapters 2–3).
