Public Choice Theory

Victoria Pavlenko

Public Choice Theory

Politics and the government create the foundation upon which societies are built and also provide grounds for endless research about interactions of people, power and decisions. Twentieth century economists have addressed the complicated and intriguing questions of what processes occur when people make voting decisions and what happens in the minds of policymakers when they make decisions. The theory, which attempts to look at governments from the perspective of the bureaucrats and politicians, is knows as the Public Choice Theory. The Theory uses modern economic tools to address problems in the field of political science. Major contributors to the theory include James Buchanan, Gordon Tullock, and Mancur Olson. James Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962) .This book is considered to be one of the landmark works that found the discipline of the Public Choice Theory. James Buchanan stated that “The central contribution of this book was to identify a two-level structure of collective decision-making. We distinguished between 'ordinary politics', consisting of decisions made in legislative assemblies, and 'constitutional politics', consisting of decisions made about the rules for ordinary politics.”[1]

Before the Theory was developed, government was considered as an agent outside the scope of the economic theory, and whose actions depended on different considerations than those that drive economic agents. The Public Choice Theory studies the actions of politicians, government officials and voters as behavior of mostly self-interested agents who use rational choice (the cost-benefit analysis) and have scarce resources to achieve their goals. The issue of how individual political decision-making results in policy that conflicts with the overall desires of the general public is one of the problems addressed by Public Choice Theory. Non-economic forces, such as desire of power and respect, also affect government economic policy. The study of how legislatures make decisions and how various constitutional rules can constrain legislative decisions is a major sub-field in Public Choice. Another major sub-field is the study of bureaucracy.

One interesting conclusion of Public Choice Theory is that people lack incentives to vote and are largely ignorant of political issues. Such ignorance is rational since an individual’s vote rarely decides the outcome of an election, but the process of gathering relevant information necessary for a well-informed decision takes a great time and effort. Consequentially, spending considerable effort is not personally worth while for an average voter.

James Buchanan was born in Murfreesboro, Tennessee in 1919. He attended Middle Tennessee State, the University of Tennessee, and received his Ph.D. from the University of Chicago. He has spent most of his academic life in Virginia, first at the University of Virginia, then at Virginia Polytechnic Institute and State University, and finally, at George Mason University, where he started the Center for Study of Public Choice. Other universities that do notable research on public choice are Florida State University, Washington University (St. Louis), Montana State University, the California Institute of Technology, and the University of Rochester.

Buchanan was president of the Southern Economic Association in 1963 and of the Western Economic Association in 1983 and 1984, and vice president of the American Economic Association in 1971. James Buchanan (but not his coauthor, Gordon Tullock) was awarded the Nobel Prize in Economics in 1986 for ”development of the contractual and constitutional bases for the theory of economic and political decision making."[2]. Buchanan himself had credited Swedish economist Knut Wicksell as “…the most important of all precursory figures in public choice, especially for my own work and for what we now call “constitutional economics.””[3] Together, Buchanan and Tullock also started the academic journal Public Choice. Dr. Buchanan has also written extensively on the theory of the fiscal constitution. His work The Power to Tax: Analytical Foundations of a Fiscal Constitution (with Geoffrey Brennan) was ground breaking on how fiscal decisions are made.

Mancur Lloyd Olson, Jr. (1932 - February 19, 1998) was a leading American economist and social scientist who focused on the logical basis of interest group membership and participation. In his book, The Logic of Collective Action: Public Goods and the Theory of Groups, Professor Olson developed a theory of political science and economics of concentrated benefits versus diffused costs. He stated that large interest groups have trouble gaining and maintaining the support of those who benefit from their lobbying. That is because it is easy for individuals to "free-ride" on the efforts of others if they benefit automatically from those efforts. Another theory of Olson is that unless there is an incentive for an individual, he or she will not act in a group-oriented way. To honor Olson's many contributions to the fields of Economics and Political Science, the American Political Science Association introduced the Olson Award to the best PhD dissertation in Political Economy.

Public Choice Theory is not only an interesting and innovative approach to the government and personal decision-making regarding politics, but also a theory which uses a number of the tools developed by neoclassical economists. Such tools as Pareto efficiency, game theory, standard constrained utility maximization and cost-benefit analysis are used to explain the thinking processes of people involved in government.

Adam Smith in the Wealth of Nations had stated that it is “an invisible hand” that guides the markets toward equilibrium and that due to the “invisible hand” individuals further the common interest through the pursuit of their own self-interests. Although Public Choice recognizes that it is mainly self-interest that guides the actions of policymakers, it also takes into the account that common interests are not always served. The interests of various groups need to be addressed in order for politicians to win the votes and support of those groups, and those interests may not correspond to the interests of general public. The benefits are concentrated in the group members, but the costs are diffused throughout the whole population, and there is little resistance by the population to such practices because it shows to be more costly to fight those concentrated benefits than to allow them. Government officials can also act in their own interests of wealth and power, which do not lead to the development of common public interests. There have to be restraining and controlling mechanisms present in the pursuit of personal political and economic interests in order to maintain stability in the society.

References

Buchanan, James M. and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy. Liberty Fund, Inc. 1999. Library of Economics and Liberty. 10 April 2008. <http://econlib.org/Library/Buchanan/buchCv3c14.html>.

Buchanan , James M Public Choice: The Origins and Development of a Research Program. 10 April 2008

http://www.gmu.edu/centers/publicchoice/pdf%20links/Booklet.pdf>.

Buchanan , James M. Public Choice: Politics Without Romance. 11 April 2008

http://www.cis.org.au/policy/spr03/polspr03-2.htm>.

Shaw . Jane. Public Choice Theory. 11 April 2008

http://econlib.org/Library/Enc/PublicChoiceTheory.html>.

The James Buchanan Center for Political Economy. April 11 2008

http://www.gmu.edu/jbc/faculty_bios/buchananbio.html>.

[1] http://www.cis.org.au/policy/spr03/polspr03-2.htm

[2] http://econlib.org/Library/Buchanan/buchCv3Contents.html

[3] http://www.gmu.edu/centers/publicchoice/pdf%20links/Booklet.pdf