Public choice, or public choice theory, is a formal theory of political and social science that applies economic methods—namely, rational choice theory, game theory, decision theory, and social choice theoryFound in the JEL classification codes at JEL: D71.—to study political agents (e.g. officials, bureaucrats, and voters) and their interactions.Gordon Tullock, 2008, "public choice", The New Palgrave Dictionary of Economics. . Public choice research includes theories of political behaviour, political economics,Alberto Alesina, Torsten Persson, Guido Tabellini, 2006. "Reply to Blankart and Koester's Political Economics versus Public Choice Two Views of Political Economy in Competition", Kyklos, 59(2), pp. 201–208 public economy,At JEL: HO – General of the JEL classification codes and as in The New Palgrave Dictionary of Economics, v. 8, p. 864 and Online. and constitutional economics.James M. Buchanan, 1990. "The Domain of Constitutional Economics", Constitutional Political Economy, 1(1), pp. 1–18.Compare: Dennis C. Mueller, 2008. "constitutions, economic approach to "The New Palgrave Dictionary of Economics, 2nd Edition. Abstract: "The economic approach to constitutions applies the methodology of economics to the study of constitutions. This entry reviews the normative literature on constitutions, which assumes a two-stage collective decision process, and the positive literature that examines the decisions made by constitutional conventions and their economic consequences"
Public choice theories generally share a number of assumptions, methods, and areas of interest. Researchers emphasise the applicability of markets in the political system, the self-interested nature of agents, and the nature of decisions as a combination of individual choices rather than as an aggregate whole. Empirical methods are also relied upon by some public choice theorists in testing and validating economic models of public choice.James M. Buchanan and Gordon Tullock, 1962. The Calculus of Consent. Ann Arbor: University of Michigan Press, pp. 28; cf. ibid., 21
Several notable public choice scholars have been awarded the Nobel Prize in Economics, including Kenneth Arrow (1972), James M. Buchanan (1986), George Stigler (1982), Gary Becker (1992), Amartya Sen (1998), Vernon Smith (2002), and Elinor Ostrom (2009). Buchanan, Smith, and Ostrom were former presidents of the Public Choice Society.
Theory and methods Public choice theory is rooted in skepticism of treating government as though it attempts "to maximize some kind sort of welfare function for society", and as distinct from characterizations of self-interested economic agents, such as those in business. By contrast, public choice theory models government as made up of officials who, besides pursuing the public interest, may act to benefit themselves, for example in the budget-maximizing model of bureaucracy, possibly at the cost of efficiency.William A. Niskanen ( 1994). Bureaucracy and Public Economics, Elgar. Expanded ed. Description and review links and review excerpts.
James Buchanan has suggested that public choice theory be interpreted as "politics without romance", a critical approach to a pervasive earlier notion of idealized politics set against market failure.Buchanan, 2003 Buchanan particularly emphasised the importance of fair rules and procedures in economic decision-making. This perspective suggests that government interventions should not only aim for fair outcomes but also ensure that the processes by which these outcomes are achieved are equitable and transparent.
Buchanan and Tullock's framework of constitutional decision-making divides decisions into two categories: constitutional decisions and political decisions. Constitutional decisions establish long-standing rules that rarely change and govern the political structure itself. Political decisions take place within and are governed by the structure. The book also focuses on positive-economic analysis of the development of constitutional democracy in an ethical context of consent. The consent takes the form of a compensation principle like Pareto efficiency for making a policy change and unanimity or at least no opposition as a point of departure for social choice.
Rational choice theory Buchanan and Tullock outline methodological qualifications of the approach developed in their work The Calculus of Consent: [E]ven if the model [with its rational self-interest assumptions] proves to be useful in explaining an important element of politics, it does not imply that all individuals act in accordance with the behavioral assumption made or that any one individual acts in this way at all times ... the theory of collective choice can explain only some undetermined fraction of collective action. However, so long as some part of all individual behavior ... is, in fact, motivated by utility maximization, and so long as the identification of the individual with the group does not extend to the point of making all individual utility functions identical, an economic-individualist model of political activity should be of some positive worth. As for critiques concerning voter behavior, it is argued that public choice cannot explain why people vote due to limitations in rational choice theory.Pressman, Steven (2004) "What is wrong with public choice", Journal of Post Keynesian Economics, 27:1, 3–18 For example, from the viewpoint of rational choice theory, the expected gains of voting depend on (1) the benefit to the voter if their candidate wins and (2) the probability that one's vote will determine the election's outcome. Even in a tight election the probability that one's vote decides the outcome is estimated at effectively zero.Aldrich, J. “Rational Choice and Turnout.” American Journal of Political Science, 1993, 37 (1), 246–278. This suggests that even if a voter expects gains from their candidate's success, the expected gains from voting are still near zero. When this is considered in combination with the multiple recognized costs of voting, such as the opportunity cost of foregone wages and transportation costs, a self-interested person is theoretically unlikely to vote at all.
Pressman is not alone in his critique; other prominent public choice economists, including Anthony Downs in An Economic Theory of Democracy,Downs, A. An Economic Theory of Democracy. New York: Harper & Row, 1957 Morris P. Fiorina,Fiorina, M. “Information and Rationality in Election.” In J.A. Ferejohn and J.H.Kuklinski (eds.), Information and Democratic Processes. Urbana: University of Illinois Press, 1990, pp. 329–342. and Gordon TullockTullock, G. Towards a Mathematics of Politics. Ann Arbor: University of Michigan Press, 1967. recognize that theorizing voting behavior is a major hurdle for the public choice approach.
Validity and efficacy Steven Pressman offers a critique of the public choice approach, arguing that public choice fails to explain political behavior in a number of central areas, including politicians’ behavior and voting behavior. In the case of politicians' behavior, the public choice assumption that a politician's utility function is driven by greater political and economic power cannot account for various political phenomena.Pressman, Steven (2004) What is wrong with public choice, Journal of Post Keynesian Economics, 27:1, 3–18, These include why politicians vote against their constituents' interests, why they advocate for higher taxation, fewer benefits, and smaller government, and why wealthy people seek office.
Background and development
A 19th-century precursor of modern public choice theory was the work of Swedish economist Knut Wicksell,Knut Wicksell (1896 ). "A New Principle of Just Taxation", J.M. Buchanan, trans., in Richard A. Musgrave and Alan T. Peacock, ed. (1958). Classics in the Theory of Public Finance, Palgrave Macmillan, an essay from Wicksell (1896), Finanzthcoretische Untersuchungen, Jena: Gustav Fischer. which treated government as political exchange, a quid pro quo, in formulating a benefit principle linking taxes and expenditures.• Dennis C. Mueller (1976). "Public Choice: A Survey", Journal of Economic Literature, 14(2), p. 396. [pp. 395–433. • James M. Buchanan(1986). "The Constitution of Economic Policy", IV. Politics as Exchange & V. The Constitution of Economic Policy, Nobel Prize lecture. Republished in 1987, American Economic Review, 77(3), pp. 243–250 . American statesman and political theorist John C. Calhoun is also seen as a precursor to modern public choice theory. His writings on political economy anticipate the "public choice revolution" in modern economics and political science.
Modern public-choice theory, and especially election theory, has been dated to the work of Duncan Black, sometimes called "the founding father of public choice".Charles K. Rowley (2008). "Duncan Black (1908–1991", ch. 4 in Readings in Public Choice and Constitutional Political Economy, Springer, p. 83. In a series of papers from 1948, which culminated in The Theory of Committees and Elections (1958),Duncan Black (1958). The Theory of Committees and Elections, 2nd rev. ed, 1998, Springer. Description and preview. Black outlined a program of unification toward a more general "Theory of Economic and Political Choices" based on common formal methods,Duncan Black (1950). "The Unity of Political and Economic Science", Economic Journal, 60(239), pp. 506–514 developed underlying concepts of what became median voter theory, and rediscovered earlier work on voting theory.Duncan Black (1948a). "On the Rationale of Group Decision-making, Journal of Political Economy, 56(1), pp. 23–34 .• _____ (1948b). "The Decisions of a Committee Using a Special Majority", Econometrica,16(3), pp. 245–261 .• _____ (1969). "Lewis Carroll and the Theory of Games", American Economic Review, 59(2), pp. 206–210.• _____ (1976). "Partial Justification of the Borda Count", Public Choice, 28(1), pp. 1–15.Bernard Grofman ( 2008). "Black, Duncan (1908–1991)", The New Palgrave Dictionary of Economics, 2nd Edition. Preview link. His work also included the possibility of entirely random outcomes in a voting structure, where the only determinant of an outcome is where a particular motion falls in a given sequence.
Kenneth J. Arrow's Social Choice and Individual Values (1951) influenced the theory of public choice and election theory. Building on Black's theory, Arrow concluded that in a non-dictatorial setting, no predictable outcome or preference order can be discerned for a set of possible distributions.
Among other important works are Anthony Downs's An Economic Theory of Democracy (1957) and Mancur Olson's The Logic of Collective Action (1965),Mancur Olson, Jr. ( 1971). The Logic of Collective Action: Public Goods and the Theory of Groups, 2nd ed. Harvard University Press, Description, Table of Contents, and preview. which was fundamental in beginning the study of special interests. In it, Olson raises questions about the nature of groups. Concentrated groups' (such as farmers') incentive to act in their own interest paired with a lack of organization of large groups (such as the public as a whole) often results in legislation that benefits a small group rather than the general public.
James M. Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962), considered one of the landmarks in public choice and constitutional economics. The book's preface says it is "about the political organization" of a free society. But its methodology, conceptual apparatus, and analytics "are derived, essentially, from the discipline that has as its subject the economic organization of such a society".
Areas of study In microeconomics, public choice analyses collective decision making and studies economic models of political processes including rent-seeking, elections, legislatures, and voting behavior.
Constitutional economics