Public choice theory

Public choice theory

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In economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, public choice theory is the use of modern economic tools to study problems that traditionally are in the province of political science
Political science
Political Science is a social science discipline concerned with the study of the state, government and politics. Aristotle defined it as the study of the state. It deals extensively with the theory and practice of politics, and the analysis of political systems and political behavior...

. From the perspective of political science, it may be seen as the subset of positive political theory
Positive political theory
Positive political theory or explanatory political theory is the study of politics using formal methods such as social choice theory, game theory, and statistical analysis. In particular, social choice theoretic methods are often used to describe and analyze the performance of rules or institutions...

 which deals with subjects in which material interests are assumed to predominate.

In particular, it studies the behavior of politicians and government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

 officials as mostly self-interested agents
Agent (economics)
In economics, an agent is an actor and decision maker in a model. Typically, every agent makes decisions by solving a well or ill defined optimization/choice problem. The term agent can also be seen as equivalent to player in game theory....

 and their interactions in the social system either as such or under alternative constitutional rules. These can be represented in a number of ways, including standard constrained utility
Utility
In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....

 maximization, game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...

, or decision theory
Decision theory
Decision theory in economics, psychology, philosophy, mathematics, and statistics is concerned with identifying the values, uncertainties and other issues relevant in a given decision, its rationality, and the resulting optimal decision...

. Public choice analysis has roots in positive analysis
Positive economics
Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories...

 ("what is") but is often used for normative
Normative economics
Normative economics is that part of economics that expresses value judgments about economic fairness or what the economy ought to be like or what goals of public policy ought to be....

 purposes ("what ought to be"), to identify a problem or suggest how a system could be improved by changes in constitutional rules. Another related field is social choice theory
Social choice theory
Social choice theory is a theoretical framework for measuring individual interests, values, or welfares as an aggregate towards collective decision. A non-theoretical example of a collective decision is passing a set of laws under a constitution. Social choice theory dates from Condorcet's...

.

Origins and formation


The modern literature in Public Choice began with Duncan Black
Duncan Black
Duncan Black was a Scottish economist who laid the foundations of social choice theory. In particular he was responsible for unearthing the work of many early political scientists, including Charles Dodgson, and was responsible for the Black electoral system, a Condorcet method whereby, in the...

, who in 1948 identified the underlying concepts of what would become median voter theory
Median voter theory
The median voter theory, also known as the median voter theorem or Black's theorem, is a famous voting theorem. It posits that in a majority election, if voter policy preferences can be represented as a point along a single dimension, if all voters vote deterministically for the politician who...

. He also wrote The Theory of Committees and Elections in 1958. Gordon Tullock
Gordon Tullock
Gordon Tullock is an economist and retired Professor of Law and Economics at the George Mason University School of Law. He is best known for his work on public choice theory, the application of economic thinking to political issues...

 refers to him as the "father of public choice theory".

James M. Buchanan
James M. Buchanan
James McGill Buchanan, Jr. is an American economist known for his work on public choice theory, for which he received the 1986 Nobel Memorial Prize in Economic Sciences. Buchanan's work initiated research on how politicians' self-interest and non-economic forces affect government economic policy...

 and Gordon Tullock
Gordon Tullock
Gordon Tullock is an economist and retired Professor of Law and Economics at the George Mason University School of Law. He is best known for his work on public choice theory, the application of economic thinking to political issues...

 coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962), considered one of the landmark works that founded the discipline of public choice theory. In particular (1962, p. v), the book is about the political organization of a free society. But its method, conceptual apparatus, and analytics "are derived, essentially, from the discipline that has as its subject the economic organization of such a society." The book focuses on positive-economic
Positive economics
Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories...

 analysis as to the development of constitutional democracy but in an ethical context of consent. The consent takes the form of a compensation principle
Compensation principle
In welfare economics, the compensation principle refers to a decision rule used to select between pairs of alternative feasible social states. One of these states is the hypothetical point of departure...

 like Pareto efficiency
Pareto efficiency
Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.Given an initial allocation of...

 for making a policy change and unanimity at least no opposition as a point of departure for social choice.

Kenneth Arrow
Kenneth Arrow
Kenneth Joseph Arrow is an American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972. To date, he is the youngest person to have received this award, at 51....

's Social Choice and Individual Values
Social Choice and Individual Values
Kenneth Arrow's monograph Social Choice and Individual Values and a theorem within it created modern social choice theory, a rigorous melding of social ethics and voting theory with an economic flavor...

(1951) influenced formulation of the theory. Among other important works are Anthony Downs
Anthony Downs
Anthony Downs is a scholar in public policy and public administration, and since 1977 is a Senior Fellow at the Brookings Institution in Washington D.C..-Education:...

's An Economic Theory of Democracy
An Economic Theory of Democracy
An Economic Theory of Democracy is a political science treatise written by Anthony Downs, published in 1957. The book set forth a model with precise conditions under which economic theory could be applied to non-market political decision-making. It also suggested areas of empirical research that...

(1957) and Mancur Olson
Mancur Olson
Mancur Lloyd Olson, Jr. was a leading American economist and social scientist who, at the time of his death, worked at the University of Maryland, College Park...

's The Logic of Collective Action
The Logic of Collective Action
The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson, Jr. first published in 1965. It develops a theory of political science and economics of concentrated benefits versus diffuse costs.-Overview:...

(1965).

Public choice theory is commonly associated with George Mason University
George Mason University
George Mason University is a public university based in unincorporated Fairfax County, Virginia, United States, south of and adjacent to the city of Fairfax. Additional campuses are located nearby in Arlington County, Prince William County, and Loudoun County...

, where Tullock and Buchanan are currently faculty members. Their early work took place at the University of Virginia and Virginia Polytechnic Institute and State University, hence identification of a Virginia school of political economy
Virginia school of political economy
The Virginia school of political economy is a term applied to a school of economic thought centred on universities in Virginia, most notably George Mason University, Virginia Tech, Hampden-Sydney College and the University of Virginia, and mainly focusing on public choice theory and law and...

.

Development of public choice theory accelerated with the formation of the Public Choice Society in the United States in 1965. The loci of the Society became its journal Public Choice and its annual meetings. The journal and meetings mainly attracted economists and political scientists. The economists brought their choice-based, model-building skill. The political scientists brought their broad knowledge of different political systems and detailed knowledge of institutions and political interaction. Scholars in related fields, such as philosophy, public administration, and sociology, also contributed.

In 1970 the median voter theory
Median voter theory
The median voter theory, also known as the median voter theorem or Black's theorem, is a famous voting theorem. It posits that in a majority election, if voter policy preferences can be represented as a point along a single dimension, if all voters vote deterministically for the politician who...

 was accepted without question in public choice, but by 1980 it had been assaulted on so many fronts that it was almost abandoned. Works by Romer and Rosenthal (1979) and McKelvey (1976) showed that, when political issues are considered multidimensional rather than single dimensional, an agenda setter could start at any point in the issue space and, by strategically selecting issues, end up at any other point in the issue space, so that there is no unique and stable majority rule
Majority rule
Majority rule is a decision rule that selects alternatives which have a majority, that is, more than half the votes. It is the binary decision rule used most often in influential decision-making bodies, including the legislatures of democratic nations...

 outcome.

During the same decade, the probabilistic voting theory
Probabilistic voting theory
The probabilistic voting theory, also known as the probabilistic voting model, is a voting theory developed by professor Melvin Hinich, which has gradually replaced the median voter theory, thanks to its ability to find an equilibrium in a multi-dimensional space...

 started to replace the median voter theory, since it clearly showed how it was able to find Nash Equilibria also in multidimensional space. The theory was later completely formalized by Peter Coughlin.

Special interests


Public choice theory is often used to explain how political decision-making results in outcomes that conflict with the preferences of the general public. For example, many advocacy group
Advocacy group
Advocacy groups use various forms of advocacy to influence public opinion and/or policy; they have played and continue to play an important part in the development of political and social systems...

 and pork barrel
Pork barrel
Pork barrel is a derogatory term referring to appropriation of government spending for localized projects secured solely or primarily to bring money to a representative's district...

 projects are not the desire of the overall democracy
Democracy
Democracy is generally defined as a form of government in which all adult citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal participation in the proposal, development and passage of legislation into law...

. However, it makes sense for politicians to support these projects. It may make them feel powerful and important. It can also benefit them financially by opening the door to future wealth as lobbyists. The project may be of interest to the politician's local constituency, increasing district votes or campaign contributions
Campaign finance
Campaign finance refers to all funds that are raised and spent in order to promote candidates, parties or policies in some sort of electoral contest. In modern democracies such funds are not necessarily devoted to election campaigns. Issue campaigns in referendums, party activities and party...

. The politician pays little or no cost to gain these benefits, as he is spending public money. Special-interest lobbyists are also behaving rationally. They can gain government favors worth millions or billions for relatively small investments. They face a risk of losing out to their competitors if they don't seek these favors. The taxpayer is also behaving rationally. The cost of defeating any one government give-away is very high, while the benefits to the individual taxpayer are very small. Each citizen pays only a few pennies or a few dollars for any given government favor, while the costs of ending that favor would be many times higher. Everyone involved has rational incentives to do exactly what they're doing, even though the desire of the general constituency is opposite. (It is notable that the political system considered here is very much that of the United States, with "pork" a main aim of individual legislators; in countries such as Britain with strong party systems the issues would differ somewhat.) Costs are diffused, while benefits are concentrated. The voices of vocal minorities with much to gain are heard over those of indifferent majorities with little to lose.

Decision making processes and the state


One way to organize the subject matter studied by Public Choice theorists is to begin with the foundations of the state itself. According to this procedure, the most fundamental subject is the origin of government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

. Although some work has been done on anarchy
Anarchy
Anarchy , has more than one colloquial definition. In the United States, the term "anarchy" typically is meant to refer to a society which lacks publicly recognized government or violently enforced political authority...

, autocracy
Autocracy
An autocracy is a form of government in which one person is the supreme power within the state. It is derived from the Greek : and , and may be translated as "one who rules by himself". It is distinct from oligarchy and democracy...

, revolution
Revolution
A revolution is a fundamental change in power or organizational structures that takes place in a relatively short period of time.Aristotle described two types of political revolution:...

, and even war
War
War is a state of organized, armed, and often prolonged conflict carried on between states, nations, or other parties typified by extreme aggression, social disruption, and usually high mortality. War should be understood as an actual, intentional and widespread armed conflict between political...

, the bulk of the study in this area has concerned the fundamental problem of collectively choosing constitutional rules
Constitution
A constitution is a set of fundamental principles or established precedents according to which a state or other organization is governed. These rules together make up, i.e. constitute, what the entity is...

. This work assumes a group of individuals who aim to form a government. Then it focuses on the problem of hiring the agents required to carry out government functions agreed upon by the members.

The main questions are: (1) how to hire competent and trustworthy individuals to whom day-to-day decision-making can be delegated and (2) how to set up an effective system of oversight and sanctions for such individuals. To answer these questions it is necessary to assess the effects of creating different loci of power and decision-making within a government; to examine voting and the various means of selecting candidates and choosing winners in elections; to assess various behavioral rules that might be established to influence the behavior of elected and appointed government officials; and to evaluate alternative constitutional and legal rights
Constitutional right
An inalienable right is a freedom granted by a Nature or the Creator's endowment by birth , and may not be legally denied by that government.-United States:...

 that could be reserved for citizens, especially rights relating to citizen oversight and the avoidance of harm due to the coercive power of government agents.

These are difficult assessments to make. In practice, most work in the field of Public Choice has dealt with more limited issues. Extensive work has been done on different voting systems and, more generally, on how to transform what voters are assumed to want into a coherent "collective preference". Of some interest has been the discovery that a general collective preference function cannot be derived from even seemingly mild conditions. This is often called Arrow's impossibility theorem
Arrow's impossibility theorem
In social choice theory, Arrow’s impossibility theorem, the General Possibility Theorem, or Arrow’s paradox, states that, when voters have three or more distinct alternatives , no voting system can convert the ranked preferences of individuals into a community-wide ranking while also meeting a...

. The theorem, an economic generalization of the voting paradox
Voting paradox
The voting paradox is a situation noted by the Marquis de Condorcet in the late 18th century, in which collective preferences can be cyclic , even if the preferences of individual voters are not. This is paradoxical, because it means that majority wishes can be in conflict with each other...

, suggests that voters have no reason to expect that, short of dictatorship, even the best rules for making collective decisions will lead to the kind of consistency attributed to individual choice.

Much work has been done on the loose connection between decisions that we can imagine being made by a full contingent of citizens with zero collective decision-making costs and those made by legislators representing different voting constituencies. Of special concern has been logrolling
Logrolling
Logrolling is the trading of favors, or quid pro quo, such as vote trading by legislative members to obtain passage of actions of interest to each legislative member...

 and other negotiations carried out by legislators in exercising their law-making powers. Important factors in such legislative decisions are political parties
Political Parties
Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy is a book by sociologist Robert Michels, published in 1911 , and first introducing the concept of iron law of oligarchy...

 and pressure groups. Accordingly, Public Choicers have studied these institutions extensively. The study of how legislatures make decisions and how various constitutional rules can constrain legislative decisions is a major sub-field in Public Choice.

Bureaucracy


Another major sub-field is the study of bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...

. The usual model depicts the top bureaucrats as being chosen by the chief executive and legislature, depending on whether the democratic system is presidential
Presidential system
A presidential system is a system of government where an executive branch exists and presides separately from the legislature, to which it is not responsible and which cannot, in normal circumstances, dismiss it....

 or parliamentary
Parliamentary system
A parliamentary system is a system of government in which the ministers of the executive branch get their democratic legitimacy from the legislature and are accountable to that body, such that the executive and legislative branches are intertwined....

. The typical image of a bureau chief is a person on a fixed salary who is concerned with pleasing those who appointed him. The latter have the power to hire and fire him more or less at will. The bulk of the bureaucrats, however, are civil servants whose jobs and pay are protected by a civil service system against major changes by their appointed bureau chiefs. This image is often compared with that of a business owner whose profit varies with the success of production and sales, who aims to maximize profit, and who can hire and fire employees at will.

Rent-seeking


A field that is closely related to public choice is "rent-seeking". This field combines the study of a market economy with that of government. Thus, one might regard it as a "new political economy." Its basic thesis is that when both a market economy and government are present, government agents provide numerous special market privileges. Both the government agents and self-interested market participants seek these privileges in order to partake in the resulting monopoly rent. When such privileges are granted, they reduce the efficiency of the economic system. In addition, the rent-seekers use resources that could otherwise be used to produce goods that are valued by consumers.

Rent-seeking is broader than Public Choice in that it applies to autocracies as well as democracies and, therefore, is not directly concerned with collective decision-making. However, the obvious pressures it exerts on legislators, executives, bureaucrats, and even judges are factors that public choice theory must account for in its analysis of collective decision-making rules and institutions. Moreover, the members of a collective who are planning a government would be wise to take prospective rent-seeking into account.

Political market failure: undemocratic governments


Public Choice Theory has been developed largely in the context of democratic political systems of the variety that exist in Europe and North America. A pioneering work—and, perhaps, the only work to-date of its kind—seeking to analyze collective decision-making based on rules and institutions that characterize the Less Developed Countries was undertaken by Muzaffar Ali Isani at Georgetown University
Georgetown University
Georgetown University is a private, Jesuit, research university whose main campus is in the Georgetown neighborhood of Washington, D.C. Founded in 1789, it is the oldest Catholic university in the United States...

. It focuses largely on the assumptions of a generation of development economists who have articulated the role of the state or political action as an efficient alternative to 'economic' market failures. Isani has suggested that once we introduce 'political' market imperfections as generally found in these countries, we may be confronted with the possibility that far from correcting market failures, political action may actually prove to be a source of further distortions in the economy. He then goes on to develop an essentially economic paradigm of politics appropriate to many developing countries and which is consistent with the axioms of economic theory.

Perspective


Prior to the emergence of public choice theory, many economists tended to consider the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...

 as an agent outside the scope of economic theory, whose actions depend on different considerations than those driving economic agents. (The many other economists who did place the state and its agents within such theory include Vilfredo Pareto
Vilfredo Pareto
Vilfredo Federico Damaso Pareto , born Wilfried Fritz Pareto, was an Italian engineer, sociologist, economist, political scientist and philosopher. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals' choices....

.)

Public choice theory attempts to look at governments from the perspective of the bureaucrats and politicians who compose them, and makes the assumption that they act based on Budget-maximizing model
Budget-maximizing model
Budget-maximizing model is an influential new stream of public choice theory and rational choice analysis in public administration inaugurated by William Niskanen, in 1971...

 in a self-interested way for the purpose of maximizing their own economic benefits (e.g. their personal wealth). The theory aims to apply economic analysis (usually decision theory
Decision theory
Decision theory in economics, psychology, philosophy, mathematics, and statistics is concerned with identifying the values, uncertainties and other issues relevant in a given decision, its rationality, and the resulting optimal decision...

 and game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...

) to the political decision-making process in order to reveal certain systematic trends towards inefficient government policies. There are also Austrian variants of public choice theory (suggested by von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...

, Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...

, Kirzner
Israel Kirzner
Israel Meir Kirzner is a leading economist in the Austrian School.-Early life:The son of a well-known rabbi and Talmudist, Kirzner was born in London, England and came to the United States via South Africa.-Education:After studying with the University of Cape Town, South Africa in 1947-48 and...

, Lopez, and Boettke
Peter Boettke
Peter J. Boettke is an American economist of the Austrian School.-Early life and education:Boettke was born in Rahway, New Jersey to Fred and Elinor Boettke and remained there until he moved to Pennsylvania to attend Thiel College in Greenville and later Grove City College. He became interested in...

) in which it is assumed that bureaucrats and politicians may be benevolent but have access to limited information. The assumption that such benevolent political agents possess limited information for making decisions often results in conclusions similar to those generated separately by means of the rational self-interest assumptions. Randall Holcombe and Richard E. Wagner
Richard E. Wagner
Richard E. Wagner is a professor of economics at George Mason University. He works primarily in the fields of public finance and public choice....

 have also developed the notion of "Political Entrepreneurship".

Claims


One of the basic claims that results from public choice theory is that good government policies in a democracy
Democracy
Democracy is generally defined as a form of government in which all adult citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal participation in the proposal, development and passage of legislation into law...

 are an underprovided public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...

, because of the rational ignorance
Rational ignorance
Rational ignorance occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide.Ignorance about an issue is said to be "rational" when the cost of educating oneself about the issue sufficiently to make an informed decision can outweigh any...

 of the voters. Each voter is faced with a tiny probability that his vote will change the result of the elections, while gathering the relevant information necessary for a well-informed voting decision requires substantial time and effort. Therefore, the rational decision for each voter is to be generally ignorant of politics and perhaps even abstain from voting. Rational choice theorists claim that this explains the gross ignorance of most citizens in modern democracies as well as low voter turnout. Rational abstention creates the so-called "Paradox of voting
Paradox of voting
The paradox of voting, also called Downs paradox, is that for a rational, self-interested voter the costs of voting will normally exceed the expected benefits. Because the chance of exercising the pivotal vote The paradox of voting, also called Downs paradox, is that for a rational,...

" in which a strict cost-benefit analysis implies that no one should vote.

Special interests


While good government tends to be a pure public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...

 for the mass of voters, there may be many advocacy groups that have strong incentives for lobbying
Lobbying
Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

 the government to implement specific policies that would benefit them, potentially at the expense of the general public. For example, lobbying by the sugar manufacturers might result in an inefficient subsidy
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...

 for the production of sugar, either direct or by protectionist measures. The costs of such inefficient policies are dispersed over all citizens, and therefore unnoticeable to each individual. On the other hand, the benefits are shared by a small special-interest group with a strong incentive to perpetuate the policy by further lobbying. Due to rational ignorance
Rational ignorance
Rational ignorance occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide.Ignorance about an issue is said to be "rational" when the cost of educating oneself about the issue sufficiently to make an informed decision can outweigh any...

, the vast majority of voters will be unaware of the effort; in fact, although voters may be aware of special-interest lobbying efforts, this may merely select for policies which are even harder to evaluate by the general public, rather than improving their overall efficiency. Even if the public were able to evaluate policy proposals effectively, they would find it infeasible to engage in collective action
Collective action
Collective action is the pursuit of a goal or set of goals by more than one person. It is a term which has formulations and theories in many areas of the social sciences.-In sociology:...

 in order to defend their diffuse interest. Therefore, theorists expect that numerous special interests will be able to successfully lobby for various inefficient policies. In public choice theory, such scenarios of inefficient government policies are referred to as government failure
Government failure
Government failure is the public sector analogy to market failure and occurs when a government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention...

— a term akin to market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...

from earlier theoretical welfare economics
Welfare economics
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it...

.

"Expressive interests" and democratic irrationality


Geoffrey Brennan and Loren Lomasky
Loren Lomasky
Loren Lomasky is an American philosopher, currently a Professor of Political philosophy, Policy and Law at the University of Virginia. Lomasky earned his PhD from the University of Connecticut, and has previously taught at Bowling Green State University in Ohio, the University of Minnesota in...

 claim that democratic policy is biased to favor "expressive interests" and neglect practical and utilitarian considerations. Brennan and Lomasky differentiate between instrumental interests (any kind of practical benefit, both monetary and non-monetary) and expressive interests (forms of expression like applause). According to Brennan and Lomasky, the voting paradox can be resolved by differentiating between expressive and instrumental interests. While voters have virtually no instrumental incentive to vote, they do have an expressive interest in voting. Since voters vote for expressive reasons, politicians win by targeting the median expressive preferences. Bias in favor of expressive interests means that public policy often ignores important practical considerations. For example, there are instrumental costs to restricting international trade. Yet many people favor protectionism as an expression of nationalism, despite its economic costs.

This argument has led some public choice scholars to claim that politics is plagued by irrationality. In articles published in the Econ Journal Watch, economist Bryan Caplan
Bryan Caplan
Bryan Caplan is an American economist, a Professor of Economics at George Mason University, Research Fellow at the Mercatus Center, adjunct scholar of the Cato Institute, and blogger for Econlog. He is best known for his work in public choice theory and for his libertarian ideology.-Personal...

 contended that voter choices and government economic decisions are inherently irrational. Caplan‘s ideas are more fully developed in his book The Myth of the Rational Voter
The Myth of the Rational Voter
The Myth of the Rational Voter: Why Democracies Choose Bad Policies is a 2007 book written by Bryan Caplan challenging the notion that voters are reasonable people that society can trust to make laws...

(Princeton University Press 2007). In opposition to the arguments put forward by economist Donald Wittman in his The Myth of Democratic Failure, Caplan claims that politics is biased in favor of irrational beliefs.

According to Caplan, democracy effectively subsidizes irrational beliefs. Anyone who derives utility from potentially irrational policies (such as protectionism) can receive private benefits while imposing the costs of such beliefs on the general public. Were people to bear the full costs of their “irrational beliefs”, they would lobby for them optimally, taking into account both their instrumental consequences and their expressive appeal. Instead, democracy oversupplies policies based on irrational beliefs. Caplan defines rationality mainly in terms of mainstream price theory, pointing out that mainstream economists tend to oppose protectionism and government regulation more than the general population, and that more educated people are closer to economists on this score, even after controlling for confounding factors such as income, wealth or political affiliation. One criticism is that many economists do not share Caplan's views on the nature of public choice. However, Caplan does have some data to support his position. Economists have, in fact, often been frustrated by public opposition to economic reasoning. As Sam Peltzman puts it "Economists know what steps would improve the efficiency of HSE [health, safety, and environmental] regulation, and they have not been bashful advocates of them. These steps include substituting markets in property rights, such as emission rights, for command and control. . . . The real problem lies deeper than any lack of reform proposals or failure to press them. It is our inability to understand their lack of political appeal "George Stigler's Contribution to the Economic Analysis of Regulation" 101 J. Pol. Econ. 818, 830 (October 1993).

Rent-seeking


Another major claim is that much of political activity is a form of rent-seeking which wastes resources. Gordon Tullock
Gordon Tullock
Gordon Tullock is an economist and retired Professor of Law and Economics at the George Mason University School of Law. He is best known for his work on public choice theory, the application of economic thinking to political issues...

, Jagdish Bhagwati
Jagdish Bhagwati
Jagdish Natwarlal Bhagwati is an Indian-American economist and professor of economics and law at Columbia University. He is well known for his research in international trade and for his advocacy of free trade....

, and Anne Osborn Krueger
Anne Osborn Krueger
Anne Osborn Krueger is an American economist and was the former World Bank Chief Economist from 1982 to 1986 and the First Deputy Managing Director of the International Monetary Fund from 2001 to 2006.-Education:...

 have argued that rent-seeking has caused considerable waste. In a parallel line of research Fred McChesney claims that rent extraction causes considerable waste, especially in the developing world. As the term implies, rent extraction happens when officials use threats to extort payments from private parties.

Political stance


From such results it is sometimes asserted that public choice theory has an anti-state tilt. But there is ideological diversity among public choice theorists. Mancur Olson
Mancur Olson
Mancur Lloyd Olson, Jr. was a leading American economist and social scientist who, at the time of his death, worked at the University of Maryland, College Park...

 for example was an advocate of a strong state and instead opposed political interest group lobbying. More generally, James Buchanan has suggested that public choice theory be interpreted as "politics without romance," a critical approach to a pervasive earlier notion of idealized politics set against market failure. As such it is more a correction of the earlier scientific record, almost requiring a certain pragmatism in comparing alternative politicized institutional structures.

Remedies for the public choice problem


Many proposals have been advanced for reducing what is often seen as excessive or improper influence on public choices by those who invest most to influence them. From game theory
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...

 we have the insight that a winning strategy in competitive games should have a random component so that the opponent can't anticipate one's moves. This is confirmed by the historical resort to having decisions made by officials selected at random, perhaps with a complex process of intermediate qualifying steps, called sortition
Sortition
In politics, sortition is the selection of decision makers by lottery. The decision-makers are chosen as a random sample from a larger pool of candidates....

. That is what is done in countries using a trial jury selected at random.

Applications and wider recognition


Public choice's application to government regulation was developed by George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....

 (1971) and Sam Peltzman (1976). William Niskanen is generally considered the founder of Public Choice literature on the bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...

.

Several notable Public Choice scholars have been awarded the Nobel Prize in Economics, including James M. Buchanan
James M. Buchanan
James McGill Buchanan, Jr. is an American economist known for his work on public choice theory, for which he received the 1986 Nobel Memorial Prize in Economic Sciences. Buchanan's work initiated research on how politicians' self-interest and non-economic forces affect government economic policy...

 (1986), George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....

 (1982), and Gary Becker
Gary Becker
Gary Stanley Becker is an American economist. He is a professor of economics, sociology at the University of Chicago and a professor at the Booth School of Business. He was awarded the Nobel Memorial Prize in Economic Sciences in 1992, and received the United States' Presidential Medal of Freedom...

 (1992). In addition, Vernon Smith
Vernon L. Smith
Vernon Lomax Smith is professor of economics at Chapman University's Argyros School of Business and Economics and School of Law in Orange, California, a research scholar at George Mason University Interdisciplinary Center for Economic Science, and a Fellow of the Mercatus Center, all in Arlington,...

 (2002) and Elinor Ostrom
Elinor Ostrom
Elinor Ostrom is an American political economist. She was awarded the 2009 Nobel Memorial Prize in Economic Sciences, which she shared with Oliver E. Williamson, for "her analysis of economic governance, especially the commons." She was the first, and to date, the only woman to win the prize in...

 (2009) were former Presidents of the Public Choice Society.

Criticism


In their 1994 book Pathologies of Rational Choice Theory, political scientists Donald P. Green and Ian Shapiro argue that rational choice theory
Rational choice theory
Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. It is the main theoretical paradigm in the currently-dominant school of microeconomics...

 (of which public choice theory is a branch) has contributed less to the field than its popularity suggests. They write:
The discrepancy between the faith that practitioners place in rational choice theory and its failure to deliver empirically warrants closer inspection of rational choice theorizing as a scientific enterprise.


Linda McQuaig
Linda McQuaig
Linda Joy McQuaig is a Canadian journalist, columnist and non-fiction author.-History:Long a business reporter at the Globe and Mail, she subsequently wrote a column for the National Post before moving to her current job at the Toronto Star...

 writes in All You Can Eat:
The absurdity of public-choice theory is captured by Nobel Prize-winning economist Amartya Sen
Amartya Sen
Amartya Sen, CH is an Indian economist who was awarded the 1998 Nobel Prize in Economic Sciences for his contributions to welfare economics and social choice theory, and for his interest in the problems of society's poorest members...

 in the following little scenario: “Can you direct me to the railway station?” asks the stranger. "Certainly," says the local, pointing in the opposite direction, towards the post office, "and would you post this letter for me on your way?" "Certainly," says the stranger, resolving to open it to see if it contains anything worth stealing.


It should be noted that scenarios of this type contain an implicit assumption of zero probability of the two strangers ever interacting again. With a positive probability of future interactions and the propensity of humans to use tit-for-tat type strategies (someone harms or helps you, you return the favor in kind), the optimal totally self-interested decision may be to point to the train station. Furthermore, as David D. Friedman
David D. Friedman
David Director Friedman is an American economist, author, and Right-libertarian theorist. He is known as a leader in anarcho-capitalist political theory, which is the subject of his most popular book, The Machinery of Freedom...

 observes, the benefit of cheating the stranger on one occasion may not be worth the mental effort of conceiving a way to do so and weighing the odds of suffering the consequences.

(Sen, in fact, has participated in the development of public choice theory, in such works as Collective Choice and Social Welfare.)

James Buchanan and Gordon Tullock outline the limitations of their methodology:
“even if the model [with its rational self-interest assumptions] proves to be useful in explaining an important element of politics, it does not imply that all individuals act in accordance with the behavioral assumption made or that any one individual acts in this way at all times… the theory of collective choice can explain only some undetermined fraction of collective action. However, so long as some part of all individual behavior… is, in fact, motivated by utility maximization, and so long as the identification of the individual with the group does not extend to the point of making all individual utility functions identical, an economic-individualist model of political activity should be of some positive worth.”

(Calculus of Consent, page 29)

Public Choice theorists have been criticized for failure to explain human actions motivated by non-rational or non-economic considerations. They respond, however, that the theory explains a broad variety of actions since humanitarian or even a madman's actions are also rational. This way, the argument goes, public choice allows to account for a much broader variety of actions than any other approach, and in the example above, Sen's rational actors may or may not act in a way he identified, since public choice approach does not mean the actors necessarily take advantage of one another; it only implies that the actions are 'rational'. Action to direct someone to a train station would thus be just as rational as the action to direct the stranger away for one's own reasons. Furthermore, only 'rationalism' helps to explain human motivation, whereas any other approaches such as humanitarian considerations or the willingness to get extra profit (which is in no way the same as 'rational action') would only explain a part of the developments and fails to present a comprehensive picture. Also, Bryan Caplan
Bryan Caplan
Bryan Caplan is an American economist, a Professor of Economics at George Mason University, Research Fellow at the Mercatus Center, adjunct scholar of the Cato Institute, and blogger for Econlog. He is best known for his work in public choice theory and for his libertarian ideology.-Personal...

 argues against rationality in politics, and Brennan and Lomasky account for expressive (non-economic) motives in politics.

Schram and Caterino (2006) contains a fundamental methodological criticism of public choice theory for promoting the view that the natural science model is the only appropriate methodology in social science and that political science should follow this model, with its emphasis on quantification and mathematization. Schram and Caterino argue instead for methodological pluralism.

See also


  • Choice modelling
    Choice Modelling
    Choice modelling attempts to model the decision process of an individual or segment in a particular context. Choice modelling may also be used to estimate non-market environmental benefits and costs....

  • Constitutional economics
    Constitutional economics
    Constitutional economics is a research program in economics and constitutionalism that has been described as extending beyond the definition of 'the economic analysis of constitutional law' in explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the...

  • Economic calculation debate
  • Economic imperialism (economics)

  • Fiscal Illusion
    Fiscal Illusion
    Fiscal illusion is a public choice theory of government expenditure first developed by the Italian economist Amilcare Puviani.Fiscal illusion suggests that when government revenues are unobserved or not fully observed by taxpayers then the cost of government is perceived to be less expensive than...

  • Flipism
    Flipism
    Flipism, sometimes written as "Flippism," is a pseudophilosophy under which all decisions are made by flipping a coin. It originally appeared in the Disney comic "Flip Decision" by Carl Barks, published in 1953...

  • Flypaper effect
    Flypaper effect
    The flypaper effect is the finding that "money sticks where it hits", like flies stick to flypaper. The concept was first described in this metaphorical way by Arthur Okun in response to the research of his colleague, Edward Gramlich, published in 1979 as The Stimulative Effect of Government Grants...

  • Public economics


Real politik
  • Regulatory capture
    Regulatory capture
    In economics, regulatory capture occurs when a state regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure, as it can act as...

  • Prisoner's dilemma
    Prisoner's dilemma
    The prisoner’s dilemma is a canonical example of a game, analyzed in game theory that shows why two individuals might not cooperate, even if it appears that it is in their best interest to do so. It was originally framed by Merrill Flood and Melvin Dresher working at RAND in 1950. Albert W...

  • Sortition
    Sortition
    In politics, sortition is the selection of decision makers by lottery. The decision-makers are chosen as a random sample from a larger pool of candidates....

  • Subsidiarity
    Subsidiarity
    Subsidiarity is an organizing principle that matters ought to be handled by the smallest, lowest or least centralized competent authority. The Oxford English Dictionary defines subsidiarity as the idea that a central authority should have a subsidiary function, performing only those tasks which...



External links