Public Choice Theory

1
Public Choice Theory

• Def 1 Economics applied to politics
• Def 2 Public choice economists use the tools of
  economics to analyze topics usually discussed in
  political science.
• Political Economy 90 of politics is economics
  and 90 of economics is politics.
• People are people it used to be assumed that
  workers in the public sector acted differently
  than those in the private sector.

2
The Political Market

• The median voter model says that with 2
  candidates, each will move towards the middle
  because they know they will get votes of all
  those more extreme to them and those voters in
  the middle that are closer to them.

3
Median Voter Model Predictions

• Candidates will label their opponent as too
  extreme.
• Candidates will refer to themselves as middle of
  the roaders.
• If candidates are doing poorly in the poles they
  will move modify themselves to sound more like
  opponent.
• Candidates will speak in general, instead of in
  specific terms.
• Note Much of this is based on a 2 candidate model

4
Voters and Rational Ignorance

• The costs and benefits of voting individual
  makes decision based on their own cost benefit
  analysis.
• Benefit (Prob vote makes difference)x(Actual
  benefits received if candidate wins).
• Costs Driving Waiting time Voting effort
• Point - PCT views voting the same as any other
  consumption decision that individuals make.

5
Rational Ignorance

• Question Is it rational for people to not be
  informed about politics?
• Quote from WW2 soldier Im fighting for the
  right to boo the Dodgers. Meaning politics is a
  means to an end, not an end unto itself.
• Being highly informed about all civic issues is
  very time consuming, and thus there are
  significant opportunity costs for both work,
  personal entertainment, and social life.

6
Voting on Public Goods

• Community will vote for 4 units by majority rule.
  
• 4 units is only preferred by 1 of the seven
  people.
• Change Units of X desired to 0,0,0,4,7,7,7.

7
Voting and Efficiency

• Public good can be supplied in quantities of 1,
  2, or 3.
• Marginal private benefit of each person given in
  table.
• Cost of provide a unit of Y is equal to 360.
• How much Y should be supplied?
• Remember, social optimum is where MSBMSC, so
  should choose Y3.

8
Voting and Efficiency

• What happens with voting where
• Each person pays equal share Only 1 unit
  supplied.
• Each pays amount equal to MPB All will vote for
  Y3.
• The chance though of having the information to
  enact 2 is very unlikely because there will be an
  incentive to lie.

9
Special Interest Groups

• Informational content and lobbying efforts.
• Concept of concentrated costs and diffuse
  benefits. Social benefits from not having policy
  exceed costs. Trade restriction is a common
  example.
• Benefits are diffusely spread out through entire
  population.
• Costs are concentrated on a few individuals or
  firms.
• Not in the interest of those benefiting to spend
  the time and money to lobby, BUT it is in the
  interest of those who suffer.
• Note The costs and benefits can be switched in
  this example.

10
Special Interest and Rent Seeking

• Rent vs. Profit
• Def rent part of the payment to an owner of
  resources over and above the amount those
  resources could command in any alternative use,
  ie. over and above opp cost.
• Def profit when rent results from the
  satisfaction of new demand or increases the value
  of resources it is profit.
• Def rent rent received from activity where no
  new demand is satisfied or no additional value is
  created. Activities leading to this are called
  rent seeking and they are socially wasteful.

11
Government Bureaucracy

• Def bureaucrat unelected work in govt bureau
  and is assigned a special task that relates to
  law.
• Bureaus receive funding from legislature.
• Bureaus do not maximize profits.
• No transferable ownership rights
• No competition.
• If legislation creating bureau is repealed there
  is no need for bureau.

12
Government Bureaucracy

• Consequences of the last 5 points.
• Not likely to end year with surplus funds.
• Costs are not minimized.
• No incentive to monitor bureau because there is
  no ownership.
• Less likely to try and please customer.
• Bureaucrats are likely to lobby for the continued
  existence and expansion of the programs they
  administer.