An elite pact or political settlement is an explicit agreement or agreed understanding between elites which moderates the violence and winner takes all nature of unrestrained conflict. The elites are often political elites, but in a research context of political economy, they can also be social and economic. Such settlements are often understood to transform government from an autocratic mode into more pluralistic, democratic form. Meanwhile, it is also a political economy framework to understand why sometimes an autocratic mode works whilst a democratic fails. Others may view the political settlement as normatively neutral.

This concept in political theory is part of elite theory and state-building. Joel Migdal has suggested that the concept of political settlements has a pedigree going back to the work of Barrington Moore. Political settlements are the frameworks for governing a state established by elites, either through formal processes or informally over time. There are numerous definitions of political settlements and elite pacts, often including an emphasis on understandings between elites that bring about the conditions to end conflict, or maintain peace. In 2011 the World Bank's World Development Report suggested a new terminology for political settlements with the concept of 'good enough coalitions.'

Elite pacts can be explicitly articulated (enshrined in an evolving document – such as a peace agreement or a constitution).

Verena Fritz and Alina Rocha Menocal published a paper in 2007 arguing that political settlements are a 'domain' at the heart of all state processes. They relate the concept to broader state theory (including the issues of elections and legitimacy). They stress that political settlements are not one-off events but evolve over time.

Important contributions on the establishing of political settlements in modern (particularly newly democratic) states have also been made by Thomas Carothers and Marina Ottaway of the Carnegie Endowment for International Peace. Also of note is JC Scott's work 'Seeing Like a State' which explores the routes through which political settlements in medieval Europe began to consolidate formal state structures.

The Political Settlements Framework explains how growth happens or stalls when specific institutions are only partially enforced but still workable because they fit the distribution of organisational power. Mushtaq Khan’s core insight is to prioritise feasible, growth-enhancing institutions and the discipline of rents over generic ‘good governance’.

Specifically, a ‘political settlement’ can be an interpretive framework for explaining how economic transformation proceeds when rules are only partially enforced yet workable because they fit the existing distribution of organised power. The centre of analysis is enforceability, not the elegance of legal texts or generic ‘good governance’. The question asked is simple and demanding: given who can veto, reward and punish, which rules can actually be implemented at tolerable conflict and monitoring cost. Growth then appears as an outcome of fit between power and institutions rather than as the reward for adopting an ideal checklist. This is why the framework should not be mistaken for an elite-bargain manual. Private deals may occur, but the analytic focus is the structural match between organisations and enforceable rules, and the way that match sustains a politically and economically viable order capable of learning, disciplining behaviour, and reallocating resources toward higher productivity uses.

A political settlement is the match between a society’s distribution of holding power (organised capacity to reward, punish, or veto, please see Khan and Gray's work) and a set of actually enforceable rules. Growth is driven when, given that match, states implement growth-enhancing (not merely market-enhancing) institutions and use disciplined rents to finance learning and enforce performance. The operative logic is: settlement → enforceability → rent design and discipline → learning and capability accumulation → productivity and transformation (for productive capabilities, please see Ha-Joon Chang and Antonio Andreoni).