Public choice

Analysing government with the same assumption of self-interested, incentive-driven people used for markets.

Comparing a real market with an imagined, perfectly benevolent state is a rigged contest. Public choice compares real markets with real governments, staffed by ordinary people facing their own incentives and limited information.

Buchanan, “Politics without Romance” (1979)

Choosing voting rules by weighing the cost of being outvoted against the cost of reaching agreement.

Unanimity protects everyone from having costs imposed on them, but agreeing is slow and expensive; simple majority is cheap to reach but lets 51% tax the other 49%. Buchanan and Tullock argued the rules themselves (the constitution) should be chosen as if by unanimity, behind a veil of uncertainty about one’s future position.

Buchanan & Tullock, The Calculus of Consent (1962)

A policy that gives a small group large gains while spreading larger total costs thinly over many people.

The few have a strong reason to organise and lobby; the many lose too little each to notice. Such policies survive even when they make society poorer overall.

Olson, The Logic of Collective Action (1965)

Large groups with a common interest tend not to act on it, because each member can free-ride on the efforts of others.

Olson overturned the assumption that shared interests produce political pressure. Small groups organise easily; large, latent groups like consumers or taxpayers rarely do.

Olson, The Logic of Collective Action (1965)

Private benefits (insurance, journals, discounts, or penalties) offered only to members, so large groups can still organise.

They explain why big lobbies such as farm bureaus, unions or retiree associations exist despite the free-rider problem: the lobbying is a by-product of something members buy for themselves.

Olson, The Logic of Collective Action (1965)

Spending resources to obtain a transfer or privilege from government rather than to create new wealth.

Tullock saw that the cost of a monopoly, tariff or theft is not only the deadweight triangle: the resources spent competing for the privilege (and defending against it) are also lost. That made the true cost of such policies much larger than earlier estimates.

Tullock, “The Welfare Costs of Tariffs, Monopolies, and Theft” (1967); Krueger (1974)

When many contenders compete for a prize by spending, total spending approaches the value of the prize.

With n equal contenders in a lottery-style contest, together they spend (n−1)/n of the rent. Whether bids are burned on lobbying or paid to the treasury as an auction makes the difference between waste and a transfer.

Tullock, “Efficient Rent Seeking” (1980)

Voters choosing not to learn about policy because the chance their vote decides anything is tiny.

Becoming informed costs hours; the expected payoff is the stake times a one-in-millions chance of being decisive. Ignorance is then the rational choice, which leaves the field to those with concentrated stakes.

Downs, An Economic Theory of Democracy (1957)

If the expected private benefit of voting is near zero, why does anyone vote?

Turnout is explained by civic duty, expressive motives and social pressure rather than instrumental calculation. Brennan, Lomasky and Caplan add that cheap, expressive votes let people indulge biases they would not act on with their own money.

Downs (1957); Brennan & Lomasky, Democracy and Decision (1993)

Legislators trading votes: I support your project if you support mine.

It lets intense minorities be heard, but it also lets a coalition pass bundles of projects that each cost more than they are worth, with the costs pushed onto everyone else.

Buchanan & Tullock, The Calculus of Consent (1962)

Spending targeted at particular districts, often agreed in a norm where every legislator gets a share.

When everyone trades, every bill passes and every district can end up worse off than if none had, yet no single legislator gains by refusing their share.

Weingast, Shepsle & Johnsen (1981)

A regulatory agency coming to serve the industry it regulates instead of the public.

Stigler argued regulation is often acquired by the industry and designed for its benefit: entry barriers, price floors, restrictions on substitutes. Industry has steady, concentrated interest; public attention is sporadic.

Stigler, “The Theory of Economic Regulation” (1971)

The movement of staff between regulatory agencies and the firms they oversee.

Expertise often exists only inside the industry, so agencies hire from it, and officials who hope for industry jobs later have a reason to be accommodating. Cooling-off rules slow but do not remove this.

Stigler (1971); Peltzman (1976)

With voters on one dimension and single-peaked preferences, two-candidate majority competition converges to the median voter’s position.

It explains why platforms often look alike and why policy tracks the middle. It also shows the limits of democracy as a preference-aggregator: the median decides, and minorities on either side get nothing from the vote itself.

Hotelling (1929); Black (1948); Downs, An Economic Theory of Democracy (1957)

Majority preferences can be cyclic: A beats B, B beats C, and C beats A.

Then there is no coherent “will of the majority”, and whoever controls the order of votes can produce any outcome.

Condorcet (1785)

No ranked voting rule over three or more options satisfies a short list of reasonable fairness conditions at once.

Every collective decision rule has some flaw: it can cycle, ignore some preferences, or be manipulated. Buchanan’s answer was to stop treating “society” as an agent with preferences and focus on rules individuals can agree to.

Arrow, Social Choice and Individual Values (1951)

The power to choose which options are voted on and in what order.

When preferences cycle, the agenda setter, a committee chair or a speaker, effectively picks the winner. Institutions that limit agenda power are a large part of constitutional design.

McKelvey (1976); Riker, Liberalism against Populism (1982)

Interest groups that seek a bigger share of output for their members rather than a bigger total.

Olson argued that stable societies accumulate such coalitions over time, which slow adoption of new technology, reallocation of labour and entry, and so slow growth. Upheavals that destroy them can be followed by fast growth.

Olson, The Rise and Decline of Nations (1982)

Niskanen’s model of bureau heads seeking larger budgets, which bring salary, staff, power and prestige.

Because the bureau knows its costs and the legislature does not, it can offer a whole output for a whole budget, expanding until total cost equals total value. Output ends up too large, and the public surplus is used up.

Niskanen, Bureaucracy and Representative Government (1971)

Collective action producing worse outcomes than the alternative, because of the incentives and information of political actors.

Market failure is a reason to look at government action, not proof that it will help. The fair comparison is between two imperfect institutions.

Buchanan & Tullock; Wolf, Markets or Governments (1988)