Public choice theory

From Exampleproblems

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. It can be considered as a bridge between economics and political science.

1 Perspective
2 Claims
3 People and institutions
4 Criticism
5 External links

Perspective

Prior to the emergence of public choice theory, economists tended to ascribe to the government the role of an infallible controller with perfect information and unlimited power—an entity which the economist David Friedman called a "bureaucrat god". However, in practice bureaucrats and politicians are only humans, and they often face incentives that draw them to decisions that produce inefficient outcomes. Since the basic assumption of the theory is that humans are rational beings that act in a self-interested way, it was thought that the economic analysis of the political decision-making process might reveal certain systematic trends towards inefficient government policies.

Public choice theorists focus on the question of what government policies are likely to be implemented in a given political setting, rather than what policies would produce a desirable outcome if they were implemented.

Claims

One of the basic claims that underlie 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 is 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.

People and institutions

Kenneth Arrow's Social Choice and Individual Values (1951), Anthony Downs's An Economic Theory of Democracy (1957), and Mancur Olson's The Logic of Collective Action (1965) are typically considered to be the founding works of the field.

Economist James M. Buchanan won the Bank of Sweden Prize in Economic Sciences for his work on public choice theory in 1986. He is generally considered to be the founder of this discipline along with Gordon Tullock. Another significant public choice component, the theory of regulatory capture, was developed by Nobel laureate George Stigler.

Public choice theory is commonly associated with universities in Virginia, most notably George Mason University and Virginia Polytechnic Institute and State University (Virginia Tech).

Criticism

A noted critic of extreme public choice theory and another winner of the Nobel prize in economics is the economist Amartya Sen, who considers public choice theory misused too often in simplified form, describing government officials as only self-interested.

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)

Another noted critic of public choice theory is Donald Wittman, author of The Myth of Democratic Failure. Wittman does not object to the basic economic approach to the problems of political decision-making, but he disputes the validity of certain basic conclusions on which the bulk of public choice theory is based, such as excessive voter ignorance and the lack of competition on the political market. Wittman's conclusion is that the political market in reality works at an efficiency level comparable to that of the economic markets and that public choice theory does not present a serious challenge to democracy.

In their book Pathologies of Rational Choice, eminent political scientists Donald Green and Ian Shapiro argue that the theory's applications to political science have been largely pathological, achieved by cherry-picking evidence, doing uncontrolled studies, and making up facts.

In other fields, such as sociology, public choice theory has been readily dismissed as a silly attempt to extend absurd theories of economics into other spheres. For example, sociologist Lars Udhen in his book The Limits of Public Choice: A Sociological Critique of the Economic Theory of Politics refers to this process as "economic imperialism".

Outside of academia, critics have sometimes pointed to the political factors they suggest may assist in the spread of public choice ideas they consider absurd. Since the conclusions of public choice theorists tend to discredit the democratic process, this theory has traditionally been linked with small government, free-market economists espousing conservative or libertarian views. However, Mancur Olson was an advocate of strong government and instead opposed political interest group lobbying.