28 terms

Public Choice Theory

Public Choice Theory
defined as the economic analysis of nonmarket decision making--application of economic analysis to political outcomes
Mancur Olson
-founder of Public Choice
-said PC filled the void w/in
-discussed problems with free-riding
-Legislators are vote-maximizers (concerned with re election)
James Buchannan
-Recipient of 1986 nobel prize in economics
-contributions to theory of public choice
-Price theory is applied to real world issues. (Chicago)
-Founded Political economy center at UVA with Warren Nutter
-Focused on determining gov't spending decisions
The methodology of Public choice
Three elements
1) selection of the stage choice under scrutiny, the options being the constitutional stage of choice and the institutional stage of choice
2) Whether one is engaged in positive analysis or normative prescription
3) Whether one adopts the homoeconomics approach or a cattalatic approach
Constitutional stage of choice
establishment of the rules of the game. social contract or constitution that sets out the rules
Conventional PC
centers on institutional stage of choice and involves the economic analysis of political and gov't processes, as well as voting procedures and buraucracies
Positive branch
assesses the impact on political outcomes and the associated implications for economic efficiency with in voting behavior etc.
Normative economics
with input form positive branch, serves as analysis of rules governing political operations and behavior, including design of efficient constitutions and other proposals for legislative and regulatory reform
simply the standard maximizing paradigm of microecon, where individuals in both political and economic arenas are assumed to behave as if they are maximizing utility. Act same in political field as you would the market
developed by Hayek
concepts of spontaneous coordination and spontaneous order take center stage over the principle of maximization and the emphasis shifts from simple to complex changes.
Foundational Ideas of PC
1)Rationally Ignorant Voter
2)Impossibility theorem
3)Median voter theorem
4)Log Rolling
5)Capture Theory
Rationally Ignorant voter
Anthony Downs pointed out that the voter is largely ignorant of political issues and that this ignorance is rational. Individual's vote rarely decides an election. MB<C of voting [MB=0 and MC is +]
Impossibility Theorem
developed by Kenneth Arrow. shows that people cannot use voting to make collective goals to please everyone
Median Voter Theorm
created by Duncan Black. states that election outcomes will reflect the outcomes preferred by the median voter
Log Rolling
A legislator supports a proposal favored by another in return for support of his or hers.
James C. Miller
passed Gram-Rudman law, which set a limit on annual spending and back it with automatic cuts if the ceiling was not met. Helped reduce log rolling
William Niskanen
assumed that these agencies (bureaucracy) would use the information and expertise they gained in administering specific legislative programs to extract the largest budget possible from relativcely uniformed inexpert legislators.
Capture Theory
Interest groups and other political figures will use the regulatory and coercive powers of government to shape laws and regulations in a way that is beneficial to them.
created by George Stigler
Knut Wicksell
-Influenced by Carl Menger
-Most important figure for PC w/in constitutional econ
-Majority rule imposed net costs and damages on large segments of tax payer group. Proposed voting rule to be modified in direction of unanimity. Simple to super majority rule
Erik Lindahl
-advisor for swedish government and central bank
-Lindahl Tax: individuals pay for the provision of a public good according to their marginal benefits
-proved unanimous consent can be obtained
Duncan Black
Concerned with majority-voting rules in small committee settings
Kenneth Arrow
Impossibility Theorem. When voters have 3 or more options, no rank order voting system can convert the ranked preferences of individuals into a community wide ranking while also meeting a pre-specified set of criteria
Unanimous Consent Rule
-proposed by Wicksell
-requires that each decision authorizing gov't expenditure be accompanied by a related tax bill to finance that expenditure and further the joint expenditure tax package be passed with unanimous consent
-lindahl proved UC can be obtained
-very costly, incentive for individuals to hold out
Optimal Majority
-simple majority is not efficient
- efficiency is located at 3/5 majority rule
political outcomes depend on order of voting process
Max Weber
contributions to political sociology provided early foundation for poli sci and public admin analysis of politics and the buraucracy
Rent Seeking
-created by Gordon Tulluck
A process in which political leaders essentially rent out parts of the state to their patrons, who as a result control public goods that would otherwise be distributed in a nonpolitical manner
The methodology of Public choice