Public Choice Theory

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Public Choice Theory

• Microeconomics
• Dr. D. Foster

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Political Choices . . . Economic Reasoning

• Not how the system should work . . .
• How the system does work.
• Are politicians/bureaucrats/employees --
  rational ?-- trying to maximize their utility
  ?-- like the rest of us ?

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Two Basic Decisions How much to tax? How
much to spend?

• Vote for a new defense system?
• Vote for a new social program?
• What is the downside ?

• Does President Haeger want more for NAU?
• Does Rick Renzi want more for USGS?
• Is there any incentive to keep costs down ?

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Characteristics of the Public Sector

• Choices are enforceable.-- stop lights--
  military draft-- drug laws-- eminent domain
• Choices are restricted (lumpy)-- Grand Canyon
  buses or train?-- Chose candidate A or B?-- Is
  there any difference . . .

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The Median Voter Model

• If preferences are peaked . . .
• If we vote for the person closest to us . . .
• Candidates should congregate near the middle!

Candidate A wins !!
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The Median Voter Model

• It is 2004 and the presidential election is on

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Voting Systems

• Whats so great about majority rule?-- It is
  just like football !!
• The market results in proportional rule.
• Public choices may be inconsistent.
• Public choices may be inefficient.
• Point voting ? Continuous elections
  ?Non-geographic voting ?

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Inconsistent outcome Want a park?

• City council has 3 choices for land parcelA
  Turn it into a park.B Use it for low-income
  housing.C Allow for commercial development.
• Polling indicates that40 favor A gt C gt B35
  favor B gt A gt C25 favor C gt B gt A
• How do you frame a vote between just two ?

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Inefficient outcome Build a road?

• A road can be built that benefits 3 people. The
  cost is 300, and each would pay an equal share.
  They benefit as follows
  John 200 George 90
  Janet 80
• Will they vote to raise taxes to pay ?
• What can we do to alter the outcome ?

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Why is inefficiency a rational outcome?

• Voters information is costly (rational
  ignorance) -- Does your vote count ? -- Can you
  trust political ads ?
• Special interests -- spread costs concentrate
  benefits. -- How about a Help-Dr.-Foster tax ?
  Its a dime.
• Bureaucrats -- what are their incentives ? --
  whom do they serve ?

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Case Study 1986 Congressional RaceDistrict 1
State of Hawaii

• forthcoming

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Public Choice Theory

• Microeconomics
• Dr. D. Foster