Public choice or public choice theory uses economic tools to deal with traditional problems of political science .Its content includes the study of political behavior. In political science, it is the subset of positive political theory that studies voters, politicians, and bureaucrats and their interactions. These interactions can be studied using standard constrained utility maximization, game theory, or decision theory.
Background and development
A precursor of modern public choice theory was the work of Knut Wicksell (1896), in which he treated government's role as that of balancing exchange, in formulating a benefit principle linking taxes and expenditures.
Some subsequent economic analysis has been described as treating government as though it attempted "to maximize some kind sort of welfare function for society"
Modern public-choice theory starts from the work of Duncan Black, sometimes called "the founding father of public choice". In a series of papers from 1948, which culminated in The Theory of Committees and Elections (1958),, Black outlined a program of unification toward a more general "Theory of Economic and Political Choices" based on common formal methods
James M. Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962). The preface describes the book as about the political organization" of a free society based on methodology, conceptual apparatus, and analytics that are derived, essentially, from the discipline that has as its subject the economic organization of such a society. The consent discussed in the book 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.
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 and the fundamental problem of collectively choosing constitutional rules. 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.
Some public choice scholars claim that politics is plagued by irrationality. In articles published in the Econ Journal Watch, economist Bryan Caplan 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 (Princeton University Press 2007). Countering Donald Wittman's arguments in The Myth of Democratic Failure, Caplan claims that politics is biased in favor of irrational beliefs.
According to Caplan, democracy effectively subsidizes irrational beliefs. Some people derive utility from potentially irrational policies like protectionism receiveing 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. Many economists do not share Caplan's views on the nature of public choice. However, Caplan does have 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. 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.
Public choice's application to government regulation was developed by George Stigler (1971) and Sam Peltzman (1976).
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 and pork barrel projects are not the desire of the overall democracy. 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. 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 are doing, even though the desire of the general constituency is opposite. 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 individually lose. However the notion that groups with concentrated interests will dominate politics is incomplete because it is only one half of political equilibrium. Something must incite those preyed upon to resist even the best organized concentrated interests.
In his article on interest groups Gary Becker identified this countervailing force as being the deadweight loss from predation. 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 its assertion that politics will tend towards efficiency due to nonlinear deadweight losses and due to its claim that political efficiency renders policy advice irrelevant.
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. For example, lobbying by the sugar manufacturers might result in an inefficient subsidy 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, 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 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 – a term akin to market failure from earlier theoretical welfare economics.
Rent-seeking
A field that is closely related to public choice is the study of rent-seeking. This field combines the study of a market economy with that of government. 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. Rentiers gain benefits above what the market would have offered, but in the process allocate resources in sub-optimal fashion from a societal point of view.
Rent-seeking 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.
Another major claim is that much of political activity is a form of rent-seeking which wastes resources. Gordon Tullock, Jagdish Bhagwati, and Anne Osborn Krueger 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.
Another major sub-field is the study of 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 or parliamentary. The typical image of a bureau chief is a person on a fixed salary who is concerned with pleasing those who appointed him or her. The latter have the power to hire and fire him or her 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 in an ideal system hire and fire employees at will.
William Niskanen is generally considered the founder of public choice literature on the bureaucracy.
There is ideological diversity among public choice theorists regarding state. Mancur Olson 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.
The British journalist, Alistair Cooke, commenting on the Nobel Prize awarded to James M. Buchanan in 1986, reportedly summarized the public choice view of politicians by saying, "Public choice embodies the homely but important truth that politicians are, after all, no less selfish than the rest of us."
Recognition
Several notable public choice scholars have been awarded the Nobel Prize in Economics, including James M. Buchanan (1986), George Stigler (1982), Gary Becker (1992), Vernon Smith (2002) and Elinor Ostrom (2009). In addition, James Buchanan, Vernon Smith, and Elinor Ostrom were former presidents of the Public Choice Society.
https://en.wikipedia.org/wiki/Public_choice
Background and development
A precursor of modern public choice theory was the work of Knut Wicksell (1896), in which he treated government's role as that of balancing exchange, in formulating a benefit principle linking taxes and expenditures.
Some subsequent economic analysis has been described as treating government as though it attempted "to maximize some kind sort of welfare function for society"
Modern public-choice theory starts from the work of Duncan Black, sometimes called "the founding father of public choice". In a series of papers from 1948, which culminated in The Theory of Committees and Elections (1958),, Black outlined a program of unification toward a more general "Theory of Economic and Political Choices" based on common formal methods
James M. Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962). The preface describes the book as about the political organization" of a free society based on methodology, conceptual apparatus, and analytics that are derived, essentially, from the discipline that has as its subject the economic organization of such a society. The consent discussed in the book 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.
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 and the fundamental problem of collectively choosing constitutional rules. 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.
Some public choice scholars claim that politics is plagued by irrationality. In articles published in the Econ Journal Watch, economist Bryan Caplan 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 (Princeton University Press 2007). Countering Donald Wittman's arguments in The Myth of Democratic Failure, Caplan claims that politics is biased in favor of irrational beliefs.
According to Caplan, democracy effectively subsidizes irrational beliefs. Some people derive utility from potentially irrational policies like protectionism receiveing 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. Many economists do not share Caplan's views on the nature of public choice. However, Caplan does have 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. 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.
Public choice's application to government regulation was developed by George Stigler (1971) and Sam Peltzman (1976).
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 and pork barrel projects are not the desire of the overall democracy. 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. 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 are doing, even though the desire of the general constituency is opposite. 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 individually lose. However the notion that groups with concentrated interests will dominate politics is incomplete because it is only one half of political equilibrium. Something must incite those preyed upon to resist even the best organized concentrated interests.
In his article on interest groups Gary Becker identified this countervailing force as being the deadweight loss from predation. 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 its assertion that politics will tend towards efficiency due to nonlinear deadweight losses and due to its claim that political efficiency renders policy advice irrelevant.
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. For example, lobbying by the sugar manufacturers might result in an inefficient subsidy 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, 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 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 – a term akin to market failure from earlier theoretical welfare economics.
Rent-seeking
A field that is closely related to public choice is the study of rent-seeking. This field combines the study of a market economy with that of government. 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. Rentiers gain benefits above what the market would have offered, but in the process allocate resources in sub-optimal fashion from a societal point of view.
Rent-seeking 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.
Another major claim is that much of political activity is a form of rent-seeking which wastes resources. Gordon Tullock, Jagdish Bhagwati, and Anne Osborn Krueger 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.
Bureaucracy - Public Administration
Another major sub-field is the study of 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 or parliamentary. The typical image of a bureau chief is a person on a fixed salary who is concerned with pleasing those who appointed him or her. The latter have the power to hire and fire him or her 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 in an ideal system hire and fire employees at will.
William Niskanen is generally considered the founder of public choice literature on the bureaucracy.
There is ideological diversity among public choice theorists regarding state. Mancur Olson 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.
The British journalist, Alistair Cooke, commenting on the Nobel Prize awarded to James M. Buchanan in 1986, reportedly summarized the public choice view of politicians by saying, "Public choice embodies the homely but important truth that politicians are, after all, no less selfish than the rest of us."
Recognition
Several notable public choice scholars have been awarded the Nobel Prize in Economics, including James M. Buchanan (1986), George Stigler (1982), Gary Becker (1992), Vernon Smith (2002) and Elinor Ostrom (2009). In addition, James Buchanan, Vernon Smith, and Elinor Ostrom were former presidents of the Public Choice Society.
https://en.wikipedia.org/wiki/Public_choice
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