Public Choice Economic Theory Applied to Politics

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Public ChoiceEconomic Theory Applied to Politics
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Public Choice Theory

• This is the branch of economics that deals with
  the application of economic principles and tools
  to public sector decision making.
• People in the market sector and people in the
  public sector behave differently because the two
  sectors have different institutional arrangements.

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Moving Toward the MiddleThe Median Voter Model
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The Median Voter Model

• Suggests that candidates in a two-person
  political race will move toward matching the
  preferences of the median voter (the person whose
  preferences are at the center or middle of the
  political spectrum).

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What Does the Median Voter Model Predict?

• Candidates will label their opponent as either
  too far right or too far left.
• Candidates will call themselves middle of
  the roaders, not right or left wingers.
• Candidates will take polls, and if they are not
  doing well in the polls and their opponent is,
  they will modify their positions to become more
  like their opponent.
• Candidates will speak in general, instead of
  specific, terms.

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Costs and Benefits of Voting

• Cost-Benefit Calculation low voter turnouts not
  only due to voter apathy, but cost-benefit
  calculation.
• Reason
• The probability of one persons vote changing the
  outcome of the election is small.
• Many individual voters will vote only if they
  perceive their vote as making a difference, then
  they probably will not vote because their vote is
  unlikely to make a difference.

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Rational Ignorance

• State of rational ignorance individual chooses
  not to be informed about politics and government.
• Reason
• Benefits of becoming informed are often
  outweighed by the costs of becoming informed.
• So, many persons believe that becoming informed
  is simply not worth the effort.

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Special Interest Groups

• Subsets of the general population that hold
  intense preferences for or against a particular
  government service, activity, or policy.
• Often special interest groups gain from public
  policies that may not be in accord with the
  interests of the general public.

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Informational Content Lobbying Efforts

• The more directly and intensely issues affect
  them, the greater the incentive of individuals to
  become informed about the issues.
• The special interest group is able to sway
  politicians in its direction.
• Even if the general taxpayer were informed about
  the legislation being proposed by the special
  interest group, he or she would not be likely to
  argue against it because the benefits would not
  be worth the time and effort.
• We predict that Special interest bills have a
  good chance of being passed in our legislatures.

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Congressional Districts As Special Interest Groups

• For some issues, a particular congressional
  district may be a special interest group.
• Logrolling exchange of votes to gain support
  for legislation.
• Elected officials frequently use logrolling when
  their representative district is acting as a
  special interest group.
• legislation in the best interest of the general
  public.

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Rent Seeking Behavior

• Special interest groups often engage in rent
  seeking behavior, which has consequences for
  society as a whole.

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Rent Seeking

• Rent Vs. Profit
• When rent is the result of turnabout method of
  production, it is known as profit. Amount paid
  to the owner of resources that have an
  opportunity cost attached to them. So, those
  resources are used to create new demand or
  increase their value.
• Rent is not referred to as profit in a setting
  where no new demand is satisfied or no additional
  value is created.
• As a result, Rent seeking is the expenditure of
  scarce resources to capture a pure transfer.
• Rent Seeking Is Socially Wasteful From societys
  perspective, the resources used in rent seeking
  are wasted and make society (but not necessarily
  all individuals in society) poorer.

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Effect of Rent Seeking

• Rent Seeking Is Socially Wasteful From societys
  perspective, the resources used in rent seeking
  are wasted and make society (but not necessarily
  all individuals in society) poorer.

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Rent Seeking
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Government Bureaucracy

• A government bureaucrat is an unelected person
  who works in a government bureau and is assigned
  a special task that relates to a law or program
  passed by the legislature.

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Government Bureaus Some Facts

• A government bureau receives its funding from the
  legislature. Often, its funding in future years
  depends on how much it spends carrying out its
  specified duties in the current year.
• A government bureau does not maximize profits.
• There are no transferable ownership rights in a
  government bureau. There are no stockholders in
  a government bureau.
• Many government bureaus provide services for
  which there is no competition.
• If the legislation that established the
  government bureau in the first place is repealed,
  there is little need for the government bureau.

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Government Bureaus Some Consequences

• Government bureaus are not likely to end the
  current year with surplus funds. If they do,
  their funding the following year is likely to be
  less than it was this year.
• Because a government bureau does not attempt to
  maximize profits the way a private firm would, it
  does not watch its costs as carefully.
  Government costs are likely to remain constant or
  increase, but rarely fall.

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Consequences of Bureaucracy

• No one has a monetary incentive to monitor the
  government bureau because no one owns the
  government bureau and no one can sell an
  ownership right.
• Government bureaus and bureaucrats are not likely
  to try to please the customer as private firms
  are because they have no competition and are not
  threatened by any in the future.
• Government bureaucrats are likely to lobby for
  the continued existence and expansion of the
  programs they administer. To behave differently
  would go against their best interests.