Public Choice

Public Choice

Public choice economics is the intersection of economics and politics. It uses the tools of economics to examine collective decisions. Public choice economics reflects three main elements: (1) methodological individualism, in which decision making occurs only with individuals; (2) rational choice, in which individuals make decisions by weighing the costs and benefits and choosing the action with the greatest net benefit; and (3) political exchange, in which political markets operate like private markets, with individuals making exchanges that are mutually beneficial (Buchanan, 2003). It is this last element that makes public choice a distinct field of economics.

Using the basic tools and assumptions of economics on collective decisions provides many insights. Economists assume that individuals are rationally self-interested in private decision making. However, this assumption is not always applied to the realm of collective decision making. In fact, for the first half of the twentieth century, it was argued that collective choices are made based on what is best for society. This view is referred to as public interest theory. Early public choice scholars called this dichotomy of behavior into question, arguing that individuals are rationally self-interested regardless of which sector they operate in. The public interest theory does not allow for someone operating in the public sector to make decisions based on what would benefit solely him or her. However, the public choice theory, properly understood, does acknowledge that when an actor in the public sector acts in his or her own self-interest, it may be consistent with the public's interest. In this regard, the public choice view is a more encompassing theory.

Assuming that individuals are rationally self-interested and applying the laws of supply and demand provides a unique understanding of political decision making. (For the purposes of this chapter, the terms political and collective decision making are used interchangeably.) Voters can be thought of as demanders or consumers of public policy; as such, they are concerned with having policies enacted that will benefit them. Politicians act as suppliers of public policy. Just as businesses in the private sector compete for consumers, politicians compete for voters. If businesses want to maximize profits, then politicians want to maximize votes. Unlike in private markets, public sector decision making has a third party involved in the decision making process: bureaucrats or civil servants. These are the individuals who run government and carry out the public sector choices and policies on a day-to-day basis. Bureaucrats are not elected, which means they do not directly serve a group of constituents. The public choice view of bureaucrats is that they maximize power, prestige, and perks associated with operating that bureau. To accomplish this goal, bureaus maximize their budgets.

Public choice theory provides a way to evaluate collective decision making that not only allows for positive analysis but also addresses some of the normative issues associated with policy making. The rest of the chapter provides an overview of the origins of public choice theory and the contributions it has made to the discipline of economics.