SAN JOSÉ STATE UNIVERSITY
Public Choice Theory
Public Choice Theory is a body of theory developed by James Buchanan and
Gordon Tullock to try to explain how public decisions are made. It involves
the interaction of the voting public, the politicians, the bureaucracy and
political action committees. There are several segments to this theory.
The Irrationality of Voting for the Individual
Consider a benefit-cost comparison of voting and not voting made by an
individual A. The outcome of an election may make a significant difference
for individual A. Let us say that R is the money value of the benefit to
individual of the election coming out favorable to A. But the election
outcome, favorable or unfavorable, is most likely to occur regardless of
whether A votes or not. The only time it would make a difference is if
the election was decided by one vote. Let P be the probability of the
all the other voters besides A being equally divided. P is likely to be a
very small number. The expected benefit for A of voting is then the
product of the benefit of a favorable result times the probability of the
vote being tied without A's vote.
On the cost side there is the time and trouble of going to the polls.
Additionally in many elections there is the cost of becoming informed about
the issues or candidates. Let us assumed that the total cost of voting
Economic rationality then dictates that individual A votes if and only
if RP>C. In elections for political office candidates are usually
driven to a centrist position so there is not likely to be a great deal
of difference in the consequences for any voter of one candidate being
elected rather than another. In other words, B probably will not be a
large amount. Since P is likely to be a very small quantity the expected
gain from voting is likely to be small.
It is therefore not
surprising that the voter turnout for elections is very low. Public choice
theorists then interpret the voting that does occur as evidence of
irrationality of the public. There is an alternate explanation.
Institutional economics holds that people generally do not make
benefit cost comparison for their choices. Instead the institutionalist
economists hold that people's choices about what they eat, how they dress
and so forth are dictated by their culture. This also applies to their
voting behavior. Our culture says that it is a good thing to vote and
we therefore vote. Probably microeconomics and institutionalist economics
are partially right. There is probably a tug-of-war between individual
selfishness and culturally prescribed behavior.
The Logic of Elections
In elections for candidates it is often said that voters are forced to
vote for the lesser evil. In a two-candidate race that would probably
be accurate, but when there is more than two candidates the strategy
that is forced upon many voters is more complex. In such races the voter
must access which candidate seems to be the "greater evil" and then vote for the
candidate that is most likely to defeat that "greater evil" candidate. When
the "greater evil" candidate is not likely to win this may involve voting
for a favorite candidate. However, in a close race in which the "greater
evil" candidate has a good chance of winning the voter may be driven to
support a candidate which is not particularly to his or her liking simply
to defeat a worser evil. Perhaps "voting for the less evil of the top
two candidates" properly describes the strategy of elections.
The Existence of Social Welfare Functions
It would be nice if there was a method for acertaining the social preferences
of the public in some scientific way and using the results to make
decisions about social issues. Kenneth Arrow examined
this matter a long time ago and proved a mathematical theorem, called
Arrow's Impossibility Theorem, that says that in general it is impossible
by any political means to derive such a social welfare function.
There is a modification of Arrow's result to the effect that if there is
sufficient agreement among the preferences of the public then it is possible
to derive objectively a social welfare function. Individual preferences do
not have to be identical, although that of course would guarantee the
existence of a social welfare function for the group. It has to be that
there is enough common perception of the alternatives that they can be
aligned in a spectrum and all individual preferences have the property of
single-peakedness; i.e., there is some most preferred alternative and the
preferences drop away monotonically from that most preferred alternative.
Governments as Special Interest Groups
Politicians and bureaucrats are supposed to be agents of the general public
and act in its interest. This is but a special case of what is called the
Principal-Agent problem; i.e., that agents unless it is in their self interest
may not act in the interests of their principal. The key is to find some
incentive scheme for the agents so that in pursuing their self interest the
interest of the principal is enhanced. In business this is achieved by
such schemes as compensating corporate managers with call options for the
stock in the company so that managers in maximizing the value of the options
automatically have to maximize the value of the stock thus benefiting the
It is not so easy to find solutions to the principal-agent problem for
governments. For a long time economic theory presumed that if there was
a task that needed to done by the government that all that was required was
to set up some government organization with responsibility for achieving that
task. After the development of Public Choice Theory this is seen to be the
ultimate in naiveté. There is abundant evidence that governments
throughout history and throughout the world do not do what they are supposed
to do. In some cases the government employees do not do anything useful.
In others they will not do their job unless they are paid specifically to do
a task. The English language calls this payment a bribe but this is a
misnomer in that the word bribe is also used to designate a payment
made to a government employee to do something illegal. The payment that
is mentioned above is one made to get the government employee to do something
that is not only legal but is also his or her job.
Spatial Models of Political Competition
Harold Hoteling in the 1930s developed a model of spatial economic
competition. The example used by Hoteling was of ice cream sellers
along a linear beach. Hoteling noted that if there are two sellers
the socially efficient arrangement would be to have the sellers located
at the points that are a quarter of the beach length from each end of the
beach. He noted that competition would drive the sellers to locate at
the midpoint of the beach, contrary to social efficiency.
Anthony Downs applied Hoteling's model to
the competition of political parties and politicians in the political
spectrum. Downs work suggested that when the political process is working
properly the political candidates take the political position of the median
voter. This opened up a line of analysis in which political choices
were to be based upon the position of the median voter.
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