Public choice theory

'''Public choice theory''' is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory. It can be considered as a bridge between economics and political science.

The Public Choice Perspective

Prior to the emergence of the public choice theory, economists tended to ascribe to the government the role of an infallible controller with perfect information and unlimited power -- an entity which the economist David Friedman called a "bureaucrat god". However, in practice bureaucrats and politicians are only humans, and they often face incentives that draw them to decisions that produce inefficient outcomes. Since the basic assumption of the economic theory is that humans are rational beings that act in a self-interested way, it follows that the economic analysis of the political decision-making process might indeed reveal certain systematic trends towards inefficient government policies. Public choice theorists focus on the question of what government policies are likely to be implemented in a given political setting, rather than what policies would produce a desirable outcome if they were implemented. The conclusions of the public choice theory tend to increase skepticism towards the prospect that giving government power over various areas of human affairs will actually have beneficial results, regardless of the democratic control exercised by the citizens.

Rational Voter Ignorance

One of the basic insights that underlie the public choice theory is that good government policies in a democracy are an underprovided public good, because of the rational ignorance of the voters. Each voter is faced with an infinitesimally small probability that his vote will change the result of the elections, while gathering the relevant information necessary for a well-informed voting decision requires substantial time and effort. Therefore, the rational decision for each voter is to be generally ignorant of politics and perhaps even abstain from voting. The fact that most citizens in modern democracies display gross ignorance of politics is well attested by research, while the elections in modern democracies are usually marked by a low voter turnout.

Interest Groups and Lobbying

While the good government tends to be a pure public good for the mass of voters, there exists a plethora of various interest groups that have strong incentives for lobbying the government to implement specific inefficient policies that would benefit them at the expense of the general public. For example, lobbying by the sugar manufacturers might result in an inefficient subsidy for the production of sugar, either direct or by protectionist measures. The costs of such inefficient policy is dispersed over all citizens, and therefore unnoticeable to each individual. On the other hand, the benefits are shared by a very small special interest group, who has very strong incentives to perpetuate the policy by further lobbying. The vast majority of voters will be completely unaware of the whole affair due to the phenomenon of rational ignorance. Therefore, it can be expected that numerous special interests will be able to successfully lobby for various inefficient policies. In the public choice theory, such scenarios of inefficient government policies are referred to as government failure -- a term akin to the market failure scenarios familiar from the traditional economic theory.

Significant Contributors and Opponents

Economist James M. Buchanan won Nobel Prize in economics for his work on the public choice theory in 1986. He is generally considered to be the founder of this discipline along with Gordon Tullock. Another significant public choice component, the theory of regulatory capture, was developed by nobel laureate George Stigler, though Stigler is also noted for work in other fields of economics. A noted opponent of the public choice theory and another winner of the Nobel prize in economics is the economist Amartya Sen, who considers it to be founded on an invalid underlying assumption of self-interest. Another noted critic of the public choice theory is Donald Wittman, author of The Myth of Democratic Failure. Wittman does not object to the basic economic approach to the problems of political decision-making, but he disputes the validity of certain basic conclusions on which the bulk of the public choice theory is based, such as the excessive voter ignorance and the lack of competition on the political market. Wittman's conclusion is that the political market in reality works at an efficiency level comparable to that of the economic markets and that the public choice theory does not present a serious challenge to democracy. Since the conclusions of public choice theory tend to support limiting the power of government and discredit the democratic process of political decision-making, this theory has traditionally been linked with free-market economists espousing conservative or libertarian views. However, there are important counterexamples. For example, Mancur Olson was an important contributor to the public choice theory, as well as an advocate of strong government. In his books, he analyzed the development of Japan and Germany after the Second World War, and came to conclusion that their economic success owed a big part to the fact that there were few or no political interest groups lobbying at the time, and that the politicians had free hands to implement policies as they saw fit.

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