PUBLIC CHOICE THEORY

Oh, No!

Another unseen hand metaphor

All your life, you’ve been taught

• Democratic governments try to improve society

• A responsible electorate can toss the bums out

• Poor leadership is to blame for political apathy

• You should vote and participate in the political process

Public choice economistssay

All this good government stuff is

bunk!

Except for the extreme factions,

There’s no difference between the political

parties

Special interests will prevail over the public interest

It is not rational to vote

Bureaucrats are inefficient

Churchill says -

“Democracy is the worst form of government…

except for the alternatives”

4 KEY IDEAS IN PUBLIC-CHOICE

ECONOMICS

1. Is it rational for government

leaders to favor special interests over the general public interest?

• Special interests have a big stake in government

• So they take a big interest in government

• When they give contributions, politicians know it

• Each member of the public may lose only a little bit, when a special interest gets what it wants –

so the public doesn’t pay attention

•The public tends to be ignorant

•Lobbyists make themselves experts

The more concentrated the benefit,

and

The more diffuse the cost

The more likely the special

interest gets its way

2. Why are politicians mainly in the middle of

the road?

The median-voter

hypothesis

Prediction #1 – in primaries, candidates take a more extreme position, appealing to the median voter of

their party

Prediction #2 – in general elections, candidates

take a middle of the road position, appealing to the

median voter of the general population

3. Are people rational or irrational when they

spend little time evaluating candidates before they vote and

when they don’t vote?

Rational Ignorance

Why spend the time to be informed when your

single vote counts so little?

Why do people even vote at all?

Voting is a consumption activity –

It provides a feeling of civic duty

and

You can complain without feeling guilty

4. What is the effect of

bureaucratic entrepreneurs on

government?

A business is successful

If it can maximize profit

A bureaucrat is successful

If she or he can maximize power

Bureaucrats have a smaller department if they become more

efficient

Bureaucrats are rewarded When they expand

the duties and clientele of their departments

With a larger department comes

• A larger office

• A higher salary

• A larger pension