public choice theory

DEFITION: “Public choice theory” is the name of a subdiscipline of political economy, which studies the working of the political system using the traditional analytical tools of economic theory.

ETYMOLOGY: The word “public” derives, via Middle English and Middle French, from the Latin adjective publicus, meaning “belonging to the people” or “public,” which is itself connected to the noun, populus, meaning “the people.”

The noun “choice” derives, via Middle English, from the Old French verb, choisir, meaning “to choose.” Choisir is of Germanic origin, being connected to the Old High German verb, kiosan, also meaning “to choose.”

The word “theory” derives from the Greek verb theōreō , meaning “to look at,” “to view,” or “to observe,” and the associated noun theōria, meaning an “act of viewing or observing,” “contemplation,” or “reflection.”

“Theory” is first attested in English towards the end of the sixteenth century.

USAGE: It has been observed that public choice theory “rests on the homely but important observation that politicians are, after all, no different than the rest of us.”

Nevertheless, it took many decades before political economists gradually came to see that economic theories could be extended beyond the marketplace and applied to the behavior of government officials.

Hitting just the highlights of this history, we may observe that the roots of public choice theory are often said to lie in the 1890s in the work of the Swedish political economist, Knut Wicksell.

It was not until the 1950s, though, that the foundations of the modern approach to public choice were laid, notably, by Kenneth J. Arrow in his 1951 book Social Choice and Individual Values, by Anthony Downs in his 1957 An Economic Theory of Democracy, by the Scottish economist, Duncan Black, in his 1958 Theory of Committees and Elections, and by Mancur Olson in his 1965 The Logic of Collective Action.

The culmination of the foregoing body of research—which transformed scattered observations and insights into the systematic and highly sophisticated field of public choice theory as it exists today—is usually held to have been constituted by the work of Nobel laureate James M. Buchanan, beginning in the 1960s and extending over many decades.

In 1962, working together with his colleague Gordon Tullock, Buchanan published what many regard as his magnum opus, The Calculus of Consent.

This landmark study introduced important novel concepts and distinctions, such as, notably, the one between long-term (“constitutional”) and short-term (“political”) decisions, which constrain the choices and behavior both of the public and of government actors themselves.

Another important conceptual breakthrough introduced by the book, and studied by Buchanan, along with Tullock and other colleagues, over the following decades, was the insight that government actors may have interests that diverge from the stated function of their office.

For example, an official within the government welfare bureaucracy might well act in support of the bureaucratic interests of his own department out of self-interested motives, while disregarding the question of whether the department was doing more harm than good to the public.

Later researchersespecially, the political philosophers Geoffrey Brennan and Loren Lomasky—have studied the ways in which government actors may be influenced by “expressive” motives, as opposed to strictly rational or utilitarian ones.

Another fertile and revealing area of public choice theory has been the investigation of the manifold ways in which bureaucracies create perverse incentives, which result in government officials’ often being far more responsive to the wants and needs of well-heeled special interest groups than to those of the general public.

Finally, public choice theory has successfully raised the consciousness of economists, government officials, and the public at large regarding the widespread phenomenon of “rent-seeking” in government service.

The term “rent-seeking” is defined by economists as the practice of seeking to increase one’s share of an already-existing pool of wealth without contributing anything of value to the pool oneself.

Most examples of rent-seeking in government involve the sale of a government actor’s influence within a given bureaucracy to third parties who must deal with the said bureaucracy.

Rent-seeking by government officials may take various forms, from implicit to explicit quid pro quo arrangements involving perquisites, payments in kind, kickbacks, or outright bribes.

Even in political systems in which overt bribery is rare, other forms of rent-seeking may still be quite common.

Structurally, rent-seeking is basically a form of protection racket. Indeed, it is really little more than a polite name for a protection racket that happens to be tolerated by the powers that be—if only because it is so hard to stamp out.