public choice theory


  • 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.

  • His views capped what has come to be known as the Chicago school of political economy and it has come in sharp conflict with the so-called Virginia faction of public choice
    due to the former’s assertion that politics will tend towards efficiency due to nonlinear deadweight losses and due to its claim that political efficiency renders policy advice irrelevant.

  • [34] While good government tends to be a pure public good for the mass of voters, there may be many advocacy groups that have strong incentives for lobbying the government
    to implement specific policies that would benefit them, potentially at the expense of the general public.

  • Public choice, or public choice theory, is “the use of economic tools to deal with traditional problems of political science”.

  • [9] Background and development History of social choice and public choice theory[edit] See also: Social choice theory An early precursor of modern public choice theory was
    the work of Swedish economist Knut Wicksell (1896),[10] which treated government as political exchange, a quid pro quo, in formulating a benefit principle linking taxes and expenditures.

  • In contrast, public choice theory modeled government as made up of officials who, besides pursuing the public interest, might act to benefit themselves, for example in the
    budget-maximizing model of bureaucracy, possibly at the cost of efficiency.

  • Due to rational ignorance, 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.

  • [12] Some subsequent economic analysis has been described as treating government as though it attempted “to maximize some kind sort of welfare function for society” and as
    distinct from characterizations of self-interested economic agents, such as those in business.

  • Further, Steven Pressman offers a critique of the public choice approach, arguing that public choice actually fails to explain political behavior in a number of central areas
    including politicians’ behavior as well as voting behavior.

  • [2] In popular use, “public choice” is often used as a shorthand for components of modern public choice theory that focus on how elected officials, bureaucrats and other government
    agents can be influenced by their own perceived self-interest when making decisions in their official roles.

  • Thus, one might regard it as a new political economy.

  • “The political economist who seeks to offer normative advice, must, of necessity, concentrate on the process or structure within which political decisions are observed to
    be made.

  • However, the obvious pressures it exerts on legislators, executives, bureaucrats, and even judges are factors that public choice theory must account for when analysis of collective
    decision-making rules and institutions.

  • Public choice theory expects to study and influence people’s public choice processes to maximize their social utility.

  • [38] In the case of politicians’ behavior, the public choice assumption that a politician’s utility function is driven by greater political and economic power cannot account
    for various political phenomena.

  • “[26] Decision-making processes and the state One way to organize the subject matter studied by public choice theorists is to begin with, the state’s foundations.

  • [38] Pressman is not alone in his critique, other prominent public choice economists also recognize that theorizing voting behavior is a major issue for the public choice

  • The second is the use of markets in the political system, which was argued to be a return to true economics.

  • 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.

  • The consent takes the form of a compensation principle like Pareto efficiency for making a policy change and unanimity or at least no opposition as a point of departure for
    social choice.

  • [3] Public choice analysis has roots in positive analysis (“what is”) but is often used for normative purposes (“what ought to be”) in order to identify a problem or to suggest
    improvements to constitutional rules (i.e., constitutional economics).

  • [14] In a series of papers from 1948, which culminated in The Theory of Committees and Elections (1958),[15] and later, Black outlined a program of unification toward a more
    general “Theory of Economic and Political Choices” based on common formal methods,[16] developed underlying concepts of what would become median voter theory, and rediscovered earlier works on voting theory.

  • 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.

  • [1][4][5] Public choice theory is also closely related to social choice theory, a mathematical approach to the aggregation of individual interests, welfare, or votes.

  • Since voter behavior influences the behavior of public officials, public-choice theory often uses results from social-choice theory.

  • [8] The final is the self-interested nature of all individuals within the political system.

  • [20] 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.

  • Although some work has been done on anarchy, autocracy, revolution, and even war, the bulk of the study in this area has concerned with the fundamental problem of collectively
    choosing constitutional rules.

  • In political science, it is the subset of positive political theory that studies self-interested agents (voters, politicians, bureaucrats) and their interactions, which can
    be represented in a number of ways – using (for example) standard constrained utility maximization, game theory, or decision theory.

  • However, it makes sense for politicians to support these projects.

  • In it, Olson began to open questions about the nature of groups, including their lack of incentive to act with a lack of organization and free-rider problems of these larger
    groups upon specialized group’s actions.

  • In public choice theory, such scenarios of inefficient government policies are referred to as government failure – a term akin to market failure from earlier theoretical welfare

  • [20] Due to the incentive for concentrated groups (such as farmers) to act for their own interest, paired with a lack of organization of large groups (such as the public as
    a whole), legislation implemented as a result benefits a small group rather than the public at large.

  • [33] Political stance From such results it is sometimes asserted that public choice theory has an anti-state tilt.

  • [39] As for critiques concerning voter behavior, it is argued that public choice is unable to explain why people vote due to limitations in rational choice theory.

  • This political action will then be used to keep competition out of the market due to a lack of real or political capital.

  • 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.

  • [32][33] However the notion that groups with concentrated interests will dominate politics is incomplete because it is only one half of political equilibrium.

  • This is distinct from explaining the choices of economic and political agents within those rules, a subject of “orthodox” economics.

  • [37] Limitations and critique Buchanan and Tullock themselves outline methodological qualifications of the approach developed in their work The Calculus of Consent (1962),
    p. 30: [E]ven 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.

  • [33] Another major claim is that much of political activity is a form of rent-seeking that wastes resources.

  • 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.

  • Public choice refers to the behavior and process of what public goods are provided, how they are provided and distributed, and the corresponding matching rules are established.

  • Modern public-choice theory, and especially election theory, has been dated from the work of Duncan Black, sometimes called “the founding father of public choice”.

  • 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.

  • 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

  • Mancur Olson for example was an advocate of a strong state and instead opposed political interest group lobbying.

  • Its basic thesis is that when both a market economy and government are present, government agents may rent or sell their influence (i.e.

  • Constitutional economics takes into account the significant impacts of political economic decisions as opposed to limiting analysis to economic relationships as functions
    of the dynamics of distribution of “marketable” goods and services.


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