Eco 2.pdf

Public choice and Collective actions The theory of Public Choice It can be defined as: The application of economic methods to the study of political processes «Politics without Romance» The Calculus of Consent: Logical Foundations of Constitutional Democracy - James M. Buchanan and Gordon Tullock (1...

Public choice and Collective actions The theory of Public Choice It can be defined as: The application of economic methods to the study of political processes «Politics without Romance» The Calculus of Consent: Logical Foundations of Constitutional Democracy - James M. Buchanan and Gordon Tullock (1962). It is considered to be one of the classic works from the discipline of public choice in economics and political science. It presents the basic principles of public choice theory. Economics Human Behaviors Microeconomics and private sector choices it means comparing alternatives Compared to what? What about the public sector? Public Choice theory ask this question in relation to alternative ways of organizing collective decision making It compares the outcomes of market decisions to the outcomes of political decisions Why? People often see Governments as the automatic response to the problem we experience Government should do some something about it! It means that they think in terms of the best policy But what is the best policy? Public choice theory states that asking that question is not correct To answer that question properly certain assumptions on the nature of the government and what motivates its decision are needed The benevolent dictator – does he exist? Reality is different, why? The government is often seen as an entity that aggregates individual preferences for pursuing their goals or knowing what is the public interest and the “common good.” But this recalls the idea of the benevolent dictator. What is the reality instead for public choice scholars? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. James Madison Governments are composed of Politicians and Bureaucrats: - Politicians identify goals and actions to be implemented Bureaucrats are those that have to implement the actions identified by the politicians. How do politicians know what people want? Because people are called to express their preferences by voting. So, when it comes to democratic processes, we have to consider also another category: Voters. There is a dichotomy between how we imagine the government works and the way it works Are politicians different from another human being? What do you think? Can we assume that voters, politicians and bureaucrats, just like consumers, entrepreneurs and managers, act in their self-interest? Governments and politicians are elected It means that it/they have to implement policies that appeal to the electorate in order to be win the next election To ignore this means ignoring how democracy works Public choice theorists do not ask what policy would be best, but rather: what policy is likely to emerge from real-world dynamics? How do we compare it to the outcomes of market alternatives? We have to take into account the different interests of the parties involved Can we say that government and people – public or private sectors – have the same interests and incentives? How does democracy work? And how to make it better? 2. It means that: 1. Democracy is the best system available Distorted views of what democracy can achieve may encourage false expectations. This process may lead to: 1. Disenchantment towards democracy itself 2. Government overload Why study Public Choice? Understand government behavior both in democracies and non-democracies. Better understand the consequences of government behavior. Why do some countries failure to grow? Better design constitutions. Avoid the Nirvana Fallacy. The Nirvana Fallacy The Nirvana Fallacy is rejecting a realistic solution because it doesn’t meet the standard of an imaginary, perfect solution. Seat belts could trap a person in a fire therefore seatbelts shouldn’t be worn. Fallacy->seatbelts save lives on average. No solution is perfect. Economists often commit the Nirvana fallacy by comparing an imperfect market solution to a perfectly working government solution (the benevolent dictator assumption). Given these assumptions, public choice scholars logically work out the consequences for electoral equilibrium, the behavior of bureaucracy, the political power of interest groups, the differences between democracies and dictatorships, the logic of collective action, the importance of constitutions etc. Public choice is the rebuttal to the Nirvana fallacy. We must compare realistic market with realistic government. Public choice is a theory of government failure to complement theory of market failure. Will special interests prevail over the public interest? Special interests have a big stake in government So they take a big interest in government When they give contributions, politicians know it Each member of the public may lose only a little bit, when a special interest gets what it wants – so the public doesn’t pay attention The more concentrated the benefit, And the more diffuse the cost Rational Ignorance: it exists when the benefits of being informed are less than the costs of being informed. Ignorance about political matters is important for three reasons. Ignorance makes it difficult to make informed choices. Ignorance can lead to bad policy. Not everyone is rationally ignorant. The public tends to be ignorant Lobbyists make themselves experts Probability that your vote changes the outcome of an election is miniscule. So why vote? Median Voter Theorem: Mayority voting yields the median voters’ preference, even if it is the least popular preference. Except for the extreme factions, There’s no difference between the political parties Olson (1965) develops a theory of concentrated benefits versus diffuse costs. Concentrated minor interests will be overrepresented and diffuse majority interests trumped, due to a free-rider problem that is stronger when a group becomes larger. Common belief: groups of individuals with common interests normally act in such a way as to pursue them collectively, having behavior similar to that of individuals when pursuing their private interests (rational, self-interested behavior) Mancur Olson denies this thesis The raison d'être of most organizations is the pursuit of the goals of their members common interests collective goods mix of individual and common interests of individuals within an organization rational, self-interested individuals will not act to achieve their common or group interests Confronted with unless enterprises in a perfectly competitive market outside intervention Big Groups members with no incentive to act collectively not action taking Small Groups members with incentive to act collectively Taking action coercive mechanism or separate incentives weights divided arbitrarily and disproportionately We can make a distinction between: privileged group intermediate group latent group Exclusive and inclusive collective groups exclusive collective good (Market) inclusive collective good (Not Market)