PUBLIC CHOICE THEORY

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PUBLIC CHOICE THEORY

• Economic Analysis of Behavior in Government

2
Public Choice Theory

• Public choice theory is derived from the research
  of James Buchanan, Gray Becker, Victor Fuchs,
  Richard McKenzie, and Gordon Tullock.
• It applies the analysis most often associated
  with the study of private markets to behavior in
  government.

3
Public Choice Theory Has Been Used to Study

• Prejudice
• Immigration
• Health
• Crime

• Spouse seeking
• Marriage
• Divorce
• Fertility

4
Public Choice 101

• Individual behavior in government is influenced
  by many of the same considerations that influence
  behavior in markets.
• What incentives motivate government officials?
• How do elected and appointed officials face
  scarcity?
• How do elected and appointed officials face
  competition?
• How do elected officials make voluntary exchange
  for mutual gain?

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Incentives Matter

• Individual behavior in government is motivated by
  incentives including
• Monetary rewards
• Recognition
• Travel
• Information
• Influence
• Personal Satisfaction

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Competition Elected Officials

• Candidates fact scarcity and competition. They
  compete to
• Win nominations
• Earn contributions
• Attract voters
• Find office space
• Gain support from colleagues
• Gain committee assignments
• Be re-elected

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Competition Non-Elected Officials

• Non-elected officials face scarcity and
  competition. They compete to
• Increase budgets
• Obtain better equipment
• Earn travel funds
• Earn salary, promotions, and benefits
• Gain support from colleagues
• Influence decisions
• Maintain power

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Exchange in Government

• Elected officials exchange
• Service to constituents
• Funding for state or district projects
• Support from interest groups
• In return for
• Nomination
• Votes
• Contributions
• Volunteers
• Re-election

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Differences between Markets and Government

• Private markets depend on voluntary exchange.
• Private markets have a direct connection between
  payment and consumption.

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Difference between Markets and Government

• Government can set the rules of the game.
• Government can use coercion to enforce the rules

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Interest Group Effects

• Interest groups are likely to be successful when
• Benefits are concentrated among a few.
• Costs are spread out over many.

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Interest Group Effects

• Examples of interest group effects include
• Tariffs on steel
• Rent controls in some cities
• Sugar quotas
• Milk prices
• Farm Subsidies
• Ethanol Subsidies