(10) Public Choice

What is the focus of public choice economies?
applying the principles and methodology of economics to political science topics

“Public choice analysis is to government what traditional economic analysis is to markets” (Gwartney and Wagner)

Public Choice:
the study of decision-making as it affects the formation and operation of collective organizations, such as governments

Two Broad Categories of Public Choice:
1. Institutional Political Economy

2. Social Choice Theory

Institutional Political Economy:
-from a positive view, considers the role of institutional design in government structures

-where markets fail, economic policy prescribes government intervention in the marketplace to correct these failures

-assumptions: gov is in a position to determine what is best for society and political actors are benevolent

-concerned with how the current institutional environment skews incentives and how to develop institutions to limit the potential harmful consequences

Social Choice Theory:
-typically more concerned with issues in how different voting rules will affect incentives and outcomes.

-concerned with decisions that limit harmful (i.e. inefficient or unproductive) outcomes

-Rational Ignorance Effect

-Widespread/ Concentrated Cost/ Benefit Table

Rational Ignorance Effect (voter incentive):
because it is highly unlike that an individual vote will matter, a rational individual has little or no incentive to search for and acquire the info necessary to make an informed decision

Widespread/ Concentrated Cost/ Benefit Table:
Useful to visualize possible combinations for the distribution of benefits and costs among voters to consider how the alternative distribution affects the operation of representative governments

When both costs and benefits are either concentrated (III) or widespread (I)…
…representative governments tend to undertake productive projects

When the benefits are concentrated and the costs are widespread (II)…
…representative government will more easily adopt unproductive, inefficient projects

When the costs are concentrated and the benefits are widespread (IV)…
… the political process may reject productive projects and policies

Type I:
-everyone pays and everyone benefits

-net social benefit = positive

-traditional public goods (e.g. national defense) and justice system

Type II:
-special Interests (a)- farm subsidies, trade restrictions that limit imports from abroad, subsidies for sports stadiums, the arts, and various agricultural products

-special Interest Issue: an issue that generates substantial individual benefits to a small minority while imposing a small individual tax on many citizens (i.e. losses > benefits)

-Typically succeed in acquiring benefits because of…
–rational ignorance
–special interest effect

Rational Ignorance:
tax burden on each voter is marginally small, relative to information and coordination costs

Special Interest Effect:
-special interest groups are eager to provide cooperative politicians with vocal supports, financial contributions, and campaign works to sweeten the “deal”

-politicians have strong incentive to support legislation that provides concentrated benefits at the expense of disorganized groups (i.e. bulk of taxpayers and consumers

-strengthened through logrolling and pork- barrel legislation


Pork- Barrel Legislation:

-the exchange between politicians of political support on one issue for political support on another

-a package of spending projects bundled into a single bill, often used as a device to obtain funding for a group of projects intensely desired by special interests that would be unlikely to pass if voted on separately

Type III:
-competing interests (e.g. labor unions).

-competing interest legislation involves both concentrated benefits and concentrated costs (can both be for one group or each for two separate groups)

-generally results in fierce political battles because each side has a large stack in the game

-concentration makes coordination opposition and support easier

Type IV:
special interests (b) squashing productive policy (e.g. reform) because…

-widespread group benefiting is rationally ignorant about proposed legislation and therefore provides little political support

-concentrated group that bears the cost (e.g. lawyers, insurance companies) provide strong, coordinated objections

EX: tort reform legislation would have widespread benefits, but trial lawyers have blocked it for years (e.g. limiting liability suits, reducing insurance costs, and bring goods to the market have disappeared under liability suits).