Copyright © 2002 by Thomson Learning, Inc. Chapter 5 Public Choice and the Political Process Copyright © 2002 Thomson Learning, Inc. Thomson Learning™

Copyright © 2002 by Thomson Learning, Inc.

Chapter 5

Public Choice and the Political Process

Copyright © 2002 Thomson Learning, Inc. Thomson Learning™ is a trademark used herein under license.

ALL RIGHTS RESERVED. Instructors of classes adopting PUBLIC FINANCE: A CONTEMPORARY APPLICATION OF THEORY TO POLICY, Seventh Edition by David N. Hyman as an assigned textbook may reproduce material from this publication for classroom

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systems—without the written permission of the publisher. Printed in the United States of America

ISBN 0-03-033652-X


Intro

Public expenditures and taxes affect daily life

Democracy Theory of Public choice studies

how decisions to allocate resources and redistribute income are made through a nation’s political system.


Plan

I. Offre de biens collectifs

II. Modèle d’équilibre (règle de majorité)

III. Equilibres uniques et cycliques

IV. Processus politique

V. Parties politiques

VI. Groupes d’intérêt

VII. Bureaucratie


I – Offre de biens collectifs


The Supply of Public Goods Through Political Institutions

Public Choice is when decisions are made through political interaction of many persons according to pre-established rules.

Public choice vs. private choice


Political Equilibrium

A political equilibrium is an agreement on the level of production of one or more public goods given the specified rule for making the collective choice and the distribution of tax shares among individuals.


Tax Sharesor tax prices

Tax shares, sometimes called tax prices, are pre-announced levies assigned to citizens.

They are a portion of the unit cost of a good proposed to be provided by government.

ti = tax share to individual i

ti = average cost of good


Information on costs difficult to obtain.

Proposals that cannot gain approval under unamimous consent might be approced under majority rule


Individual's Choice

The individual makes choices given what will be the most preferred political outcome to them.

Each person will favor the quantity of the government-supplied good corresponding to the point at which the person’s tax share is exactly equal to the marginal benefit of the good to that person.


Figure 5.1 The Most Preferred Political Outcome of A Voter

Ta

x

Tax per Unit of Output

Output per Year 0

ti

Q*

MB i

Z


The Choice to Vote or Not

Decision to vote depends on benefits, costs and the probability that voting will achieve the anticipated benefits.

Rational Ignorance is the idea that, to many voters, the marginal cost of obtaining information concerning an issue is greater than the marginal benefit of gaining that information. This leads the voter not to gather the information and not to vote.


Determinants of Political Equilibrium

the public choice rule average and marginal costs of the

public good information available on the cost and

benefit the distribution of the tax shares distribution of benefits among voters


II – Équilibre politique (règle de majorité)


Figure 5.2 Political Equilibrium Under Majority Rule With Equal Tax Shares

Ma

rgin

al B

en

efi

t,C

os

t, a

nd

Ta

x (

Do

llars

)

Security Guards per Week 0

50

350 MC = AC

t

MBA MBB MBC

MB

E

1 2 3 4 5 6 7

MBFMBG MBHMBM


Voting to Provide Security Protection and Election Result

under Simple Majority Rule Increase Security Guards per Week to:

1 2 3 4 5 6 7

Voters A Y N N N N N N

B Y Y N N N N N

C Y Y Y N N N N

M Y Y Y Y N N N

F Y Y Y Y Y N N

G Y Y Y Y Y Y N

H Y Y Y Y Y Y Y

Result Pass Pass Pass Pass Fail Fail Fail


Median Voter Model

The median voter model assumes that the voter whose most-preferred outcome is the median of the most-preferred political outcomes of all those voting will become the political equilibrium.


Implications of Median Voter Model

Only the median voter gets his most-preferred outcome (not 51% of voters).

Others get too little or too much. The greater the dispersion, the greater

the dissatisfaction The more voters’ preferences are

clustered, the greater the satisfaction


Political Externalities

Political Externalities are the losses in well-being that occur when voters do not obtain their most-preferred outcomes given their tax shares.

Equal to zero if tax shares are adjusted to marginal benefits

Political externalities don’t exist under unanimous consent.

More inclusive majorities protect minorities


Political Transactions Costs

Political Transactions Costs are the measure of the value of time, effort, or other resources expended to reach or enforce a collective agreement.

Citizens must weigh political externalities and political transaction costs

Representative government economize on political transaction costs


III - Equilibres uniques et cycliques


Uniqueness and Cycling

A unique political equilibrium may not emerge under majority rule

The outcome can depend on the order in which alternatives are presented


Uniqueness and Cycling of Outcomes Under Majority

Rule

Voter First Choice Second Choice Third Choice

A 3 2 1

B 1 3 2

C 2 1 3

Voter Rankings For Fireworks Displays per Year


Preferences Single-peaked preferences

a unique optimal outcome exists Multi-peaked preferences

as a person moves away from their most preferred outcome they become worse off until a certain point when moving further away from their most-preferred outcome makes them better off.


Figure 5.3 Voter Rankings of Alternatives

Ne

t B

en

efi

t fo

r A

Single Peak

0

Fireworks Displays per Year

Ne

t B

en

efi

t fo

r B

Multiple Peaks

0

Ne

t B

en

efi

t fo

r C

Single Peak

0


1 2 3 2 3

1 2 3

1


Pairwise Cycling

Pairwise cycling is the phenomenon in which each outcome can win a majority depending on how it is paired for voting.


Pairwise CyclingVoter First Choice Second Choice Third Choice

A 3 2 1

B 1 3 2

C 2 1 3

Election 1 1 display per year 2 displays per year

A X

B X

C X

Totals 1 vote 2 votes

Result : 2 displays per year wins



A 3 2 1

B 1 3 2

C 2 1 3

Election 2 2 displays per year 1 display per year

A X

B X

C X


Result :1 display per year wins



A 3 2 1

B 1 3 2

C 2 1 3

Election 3 2 displays per year 3 displays per year

A X

B X

C X




Arrow's Impossibility Theorem

It is impossible to devise a voting rule that meets a set of conditions that can guarantee a unique political equilibrium for a public choice.


Conditions of Arrows Impossibility Theorem

All voters have free choice; no dictator. We cannot rule out multi-peaked preferences. If all voters change their rankings of a particular

alternative, the public choice that emerges must not move in the opposite direction.

Public choices must not be influenced by the order in which they are presented.

Public choices must not be affected by the elimination or addition of an alternative to the ballot.

Public choice should be transitive.


Cause of Cycling: Multi-peaked preferences

Voter Rankings For Fireworks Displays per Year: All Voters with Single Peaked Preferences

Voter First Choice

Second Choice

Third Choice

A 3 2 1

B 1 2 3

C 2 1 3


Figure 5.3 Voter Rankings of Alternatives

Ne

t B

en

efi

t fo

r A

Single Peak

0


N

et

Be

ne

fit

for

B’

Single Peak

0

Ne

t B

en

efi

t fo

r C

Single Peak

0


1 2 3

1 2 3 1 2 3



A 3 2 1

B’ 1 2 3

C 2 1 3

Election 1 1 display per year 2 displays per year

A X

B’ X

C X





A 3 2 1

B’ 1 2 3

C 2 1 3

Election 2 3 displays per year 1 display per year

A X

B’ X

C X


Result :1 display per year wins



A 3 2 1

B’ 1 2 3

C 2 1 3

Election 3 2 displays per year 3 displays per year

A X

B’ X

C X




Figure 5.4 The Median Peak as the Political Equilibrium under Majority Rule

Ne

t B

en

efi

t Medium Peak

(Voter C)

Fireworks Displays per Year 0

Peak for Voter A

Peak for Voter B'

1 2 3


Figure 5.5 Declining Marginal Benefit of a Pure Public Good Meaning That Preferences are Single Peaked

0

MB

t

Ma

rgin

al B

en

efi

t a

nd

Ta

x p

er

Un

it

Ne

t B

en

efi

t

Q* Output of a Pure Public Good


IV – Processus politique


Political Processes

Constitutions Minority Rule Majority Rule


Costs and Benefits of Collective Action

Benefit: decrease in political externalities

Cost: increase in political transactions cost


Possible Alternatives Methods

Unanimity Relative unanimity (2/3, 7/8 etc.) Plurality rule (more than 3 outcomes

possible) Point-count voting (enables voters to

register the intensity of their preference) Instant Runoffs


Figure 5.6 The Median Voter And Political PlatformsN

et

Be

ne

fit

Output of Government Goods and Services per Year 0

Net Benefit for the Median Voter

Q*


Forms of City Government and their Effects on Spending

Manager/Council Government Unelected city manager makes most executive

decisions with policy recommendations by elected city council.

Mayoral Government Elected mayor makes most executive decisions.

Results Similar total expenditures Mayoral systems utilize more capital intensive

public goods production


Figure 5.7 Number of Voters and Government Output

Nu

mb

er

of

Vo

ters

Output of Government Goods and Services per Year 0 Q*


Logrolling or vote trading

Logrolling is the act of voting for something you would ordinarily vote against so that someone else will vote for something that they would ordinarily vote against.

This is typically done when people care deeply about passage of their issue and less about the other issue.


Figure 5.8 Logrolling

0

300 250

100

A

MBB

1

t

MCB

0

600

250 200

C

1

t

MC = MSC

500

0

300 250

100

B

1

t

MC

MBA

Ma

rgin

al B

en

efit

,C

os

t, a

nd

Ta

x (

Do

llars

)MB

MBC MBA MBB

MBB

MBA MBB

MBC

Ma

rgin

al B

en

efit

,C

os

t, a

nd

Ta

x (

Do

llars

)

Ma

rgin

al B

en

efit

,C

os

t, a

nd

Ta

x (

Do

llars

) Fireworks Displays per Week

Security Guards and Fireworks Displays per Week


Special Interests

Special Interests are groups that lobby on a particular issue.

An example of a special interest is unions and/or steel companies lobbying for Tariffs and Import Quotas to protect their jobs or profits.

Efficiency losses per job saved almost always exceed the pay of the retained worker.

Estimates of the net effect run between –$9000 and –$38,000


Bureaucracy and the Supply of Public Output

Officials measure their power in terms of the size of their budget, not the efficiency of the outcome they generate. This causes bureaucrats to have a self-interest in inefficiently high levels of government spending.


Figure 5.9 Bureaucracy and Efficiency

Q*

A

E

B

A

Output per Year

Q’B 0 QB Q*

Ben

efit

an

d

Co

st (

Do

llar

s)

Output per Year

B

Ben

efit

an

d

Co

st (

Do

llar

s)

TSB'

TSB

TSC

MSC

MSB

Documents

Copyright © 2002 by Thomson Learning, Inc. Chapter 5 Public Choice and the Political Process Copyright © 2002 Thomson Learning, Inc. Thomson Learning™