Public choice theory

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Public choice theory is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory, namely game theory and decision theory. It can be considered as a bridge between economics and political science. Public choice theory may also be referred to as rational choice theory, positive political theory, social choice theory, and political economic theory. Also see Public Choice.

Perspective[]

Prior to the emergence of public choice theory, many economists tended to consider the government 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 would include Vilfredo Pareto.)

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 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 and game theory) 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 Mises, Hayek, Kirzner, and Boettke) in which it is assumed that bureaucrats and politicians are 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.

Positive public choice theory focuses on the question of what government policies are likely to be implemented in a given political setting, while normative public choice theory considers what policies would produce a desirable outcome if they were implemented.

Claims[]

One of the basic claims that results from public choice theory is that good government policies in a democracy are an underprovided public good, because of the rational ignorance of the voters. Each voter is faced with an infinitesimally small 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.

While the good government tends to be a pure public good for the mass of voters, there exists a plethora of various interest groups that have strong incentives for lobbying the government to implement specific inefficient policies that would benefit them 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 policy are dispersed over all citizens, and therefore unnoticeable to each individual. On the other hand, the benefits are shared by a very small special interest group, who has very strong incentives to perpetuate the policy by further lobbying. The vast majority of voters will be completely unaware of the whole affair due to the phenomenon of rational ignorance. Therefore, theorists expect that numerous special interests will be able to successfully lobby for various inefficient policies.

In the public choice theory, such scenarios of inefficient government policies are referred to as government failure — a term akin to the market failure scenarios familiar from the traditional economic theory.

Public Choice economics often results in conclusions that would suggest preference for small-government economic policies. Still, this is not always the case. Kenneth Arrow (whose impossibility theorem is the result of public choice theory provoking the most hostile criticism) has supported some decidedly left-wing policies, and Mancur Olson was an advocate of strong government and instead opposed political interest group lobbying.

People and institutions[]

The modern economic literature in Public Choice began with Duncan Black, who in 1948 identified the underlying concepts of what would become the Median Voter Theory. Significant founding works of the field include Kenneth Arrow's Social Choice and Individual Values (1951), Anthony Downs's An Economic Theory of Democracy (1957), Mancur Olson's The Logic of Collective Action (1965) and James M. Buchanan and Gordon Tullock's The Calculus of Consent (1962). Public choice theory is commonly associated with universities in Virginia, most notably George Mason University, Virginia Tech, and the University of Virginia, where Tullock and Buchanan first worked in developing the theory.

Public choice's application to government regulation was developed by George Stigler (1971) and Sam Peltzman (1976). William Niskanen is generally considered the founder of Public Choice literature on the bureaucracy.

Several notable Public Choice scholars have been awarded the Bank of Sweden Prize in Economic Sciences, including Buchanan (1986), Stigler (1982), Arrow (1972), and Gary Becker (1992). In addition, Vernon Smith(2002) used to be President of Public Choice Society from 1988 to 1990.

Criticism[]

In their 1994 book Pathologies of Rational Choice Theory, political scientists Donald P. Green and Ian Shapiro argue that public choice theory 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 [aka public choice] theorizing as a scientific enterprise." (pg 6)

The 1996 book The Rational Choice Controversy: Economic Models of Politics Reconsidered, edited by Jeffrey Friedman, is a collection of essays that respond to (both supporting and opposing) Pathologies of Rational Choice Theory.

Quotes[]

The absurdity of public-choice theory is captured by Nobel Prize-winning economist Amartya Sen 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.

--Linda McQuaig, All You Can Eat

External links[]

Notes for a course in public choice by Bryan Caplan
Introduction to Public Choice Theory, by Leon Felkins. Contains numerous links of interest
Collected Works of James M. Buchanan at the Library of Economics and Liberty. Includes The Calculus of Consent, by James M. Buchanan and Gordon Tullock
"Public Choice Theory" at the Concise Encyclopedia of Economics,
The Field of Public Choice by Pat Gunning

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