Thoughts on public choice theory

A reader asks,

What (if any) would you consider to be the most powerful rebuttal(s) of public choice theory?

First, Bueller, what is public choice theory? Jane Shaw writes that its adherents believe that

although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest.

I think that captures the spirit of public choice theory, but I would tighten it up. I prefer:

Public choice theorists examine what is likely to occur if participants in the political process are motivated primarily by personal economic gain.

In any case, one rebuttal that leaps out at me is the fact that so many people vote, given the extreme unlikelihood that one’s vote will determine the election outcome, and the rather large unlikelihood that the election outcome really will directly affect your personal well-being in a deterministic way. From the standpoint of self-interest, the cost of voting far exceeds the expected personal benefit. If people were self-interested when it comes to voting, we would expect to see fewer people bothering to cast ballots.

The same argument applies to other participants in the policy process. Some people who run for office or accept government positions clearly lower their lifetime incomes by doing so. That should not happen if they are motivated primarily by personal economic gain.

There should be a literature demonstrating how court decisions are affected by the self-interest of judges. That literature, if it exists, has not come to my attention.

One colorful model of public policy is “bootleggers and Baptists,” both of whom would like to see alcohol made illegal. Public choice theory explains the bootleggers, but not the Baptists.

Finally, what of public choice theorists themselves? If everyone is always acting solely out of a goal of personal economic gain, then why trust what a public choice theorist says? (This is a problem for any universal reductionist theory of motivation. Was Freud just articulating his theories out of hatred for his father and love for his mother?)

Thinking about public choice theory as a project to reduce political science to individualistic economics, I judge it to be a failure. Instead, you have to bring in sociology, including status hierarchies, tribalism, and sources of group cohesion, especially symbols and language.

So there is a lot to criticize in public choice theory. And I have not even brought up the issue of how, if at all, a Constitution is supposed to solve public choice problems.

But if you should not try to do too much with public choice theory, to ignore it altogether is a serious mistake. And many economists make that mistake.

For example, textbook public finance is based on public goods theory, which says that government should (and presumably will) undertake policies to correct market incentives when those incentives would lead to underproduction or overproduction of certain goods. It assumes, or implicitly predicts, that economic analysis will be the main determinant of public policy.

Instead, public choice theory predicts that those with an economic stake in a policy outcome will work harder to achieve that outcome than people who have no stake. That prediction generally holds, and it matters. It is the influence of public choice theory that leads me to predict that when single payer health care comes to the U.S., the insurance companies will remain active as profitable public utilities rather than get shut out.

When I say that government intervention in a market almost always takes the form of “subsidize demand, restrict supply,” I am applying public choice theory. In contrast, standard public goods theory would not expect this combination of policies, because one serves to increase output of the good and the other serving to decrease output. From the public goods perspective, it is contradictory to subsidize demand while restricting supply.

An even more naive political model is “good guys are with me, but there are bad guys out there who mess things up.” That model serves as the basis for every Paul Krugman column, and it strikes me as the basis for Nancy MacLean’s infamous book. And it is not just people on the left who are guilty of using the naive model. The Three Languages of Politics shows how everyone uses the naive model.

I think that the public choice framework of interpretation has plenty of room for competitors. But there is little effective competition provided by the public goods framework or the naive framework.

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24 Responses to Thoughts on public choice theory

  1. Andrew' says:

    I define public choice theory as “what if these folks act like everybody else?”

  2. Curt says:

    Thanks for the overview & comments.
    Made me think of corporations as ‘persons’ and thus to this question: is the lobbyist’s goal their own ‘personal’ self-interest, or the interest of the one paying the salary (or most likely some combination).

  3. Chris Scoggins says:

    I think that your ‘tightening up’ of the definition falls trap to the same line of thinking that many anti-marketists fall into. People don’t make decisions based on ” personal economic gain” but based on self-interest. The realm of self-interest falls well outside of strictly economic gain. Ego, power, charity, reputation, legacy – all legitimate aspects of self-interest that have little or nothing to do with economic gain.

    • Roger Sweeny says:

      Absolutely true. But once you include all those things (and more besides), you have less a theory and more a description.

      You have to know how much to include in what situation. But for that, you need a meta-theory. Or at least some sort of best trade practices. Or Aristotelian practical wisdom.

  4. Ben Kennedy says:

    From the standpoint of self-interest, the cost of voting far exceeds the expected personal benefit.

    People vote because it makes them happy to vote! It provides a large psychic benefit to confirm your identity as part of the tribe. People often talk about how they are proud to vote for so-and-so. I agree there is almost no material benefit to voting, but that fact that people vote in droves when it is not mandatory means that there is definitely self-interest in play

    • Nicholas Weininger says:

      Right. This is known as “expressive voting,” see e.g. Caplan’s treatment at
      http://econfaculty.gmu.edu/bcaplan/e410/pc11.htm

      It could be a fruitful complement to public choice theory to extend this theory to all political actors; e.g. to model officeholders as not only pandering to the expressive interests of voters, but indulging their own expressive/identity-confirming psychological self-interest. This gives you quite different predictions than either a naive public-good-seekers model or a “narrow public choice” economic-gain-seekers model, and maybe predicts better sometimes.

    • Roger Sweeny says:

      This reminds me of being in a graduate micro class and listening to Ken Arrow go on about how gambling was irrational. After all, “the house always wins”: the expected value of your bet is always negative. He just couldn’t understand that people got pleasure from imagining that they might win or just participating in that dangerous I-might-win-I might-lost situation.

  5. Eric says:

    I prefer to view public choice as the application of Buchanan’s “exchange” paradigm to political action, as opposed to the “allocation” paradigm.

    I also think this interpretation applies more generally to the problems facing internal administration, such as those occurring in the firm.

    • Eric says:

      … More specifically, using the “exchange” paradigm, the vote-casting problem may fall away because voters are exchanging signals with each other.

  6. R Richard Schweitzer says:

    With all DUE deference to Jane Shaw’s entry (cited), which, if memory serves, is a replacement for an earlier entry on the subject, for a broader understanding:

    http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1986/buchanan-lecture.html

    Even more succinctly (from the original inquirer into “non-market” decisions) is Gordon Tullock’s 1987 piece on “Public Choice” done for “The New Palgrave;” reprinted in “Virginia Political Economy” [Liberty Fund 2004].

    To gain a very valuable view of the **thinking** that went into the development of the concept, there are also on pages 27-35 of that Volume Tullock’s 1993 musings about the 25 years of work then to come.

    Read the whole thing.

  7. JAFD says:

    This entire discussion seems to be ignoring the works of the late Outis Philalithopoulos
    for which, see the discussion at:
    http://www.nakedcapitalism.com/2011/04/blacklisted-economics-professor-found-dead-nc-publishes-his-last-letter.html

  8. John Eremita says:

    Public choice theory does explain the Baptists as well. We can view their goal as self interest by their belief that their ideas are best for society & they “profit” when these ideals are accepted. More converts and the satisfaction in saying “We’re right!” Progressives & religious zealots are similar in this way. Trying to dictate what is best in their view, but robbing us of liberty. Am I wrong? Also have been reading most of the criticism of MacLean’s book in Cafe Hayek. It seems to me that Buchanan did not believe public choice theory explained everything, but was using it to remind us in an intellectual way why we must protect minority opinions & that majorities can lead us to bad outcomes. Even though voted for by a majority, WHICH MAJORITY? can be a valid question. He also made it a point to say he is presenting all of this for (more) study & not as advocacy &/or the definitive explanation. With all these economists, historians, pundits AND regular folks talking about it, commenting on it, I think we’re all learning some valuable info. The big lesson IMHO: have a healthy suspicion of gov’t no matter who is in control because control is power & we know what power can do. Must now read The Three Languages Of Politics to learn more.

    • Chuck Smith says:

      I see the Baptist being explained also, just slightly differently. The desire for the outlaw of liquor is more to remove the temptation from their own lives and those of their loved ones, to ensure the sin is not undertaken due to ease of acquisition.

  9. michael moran says:

    Is there a public choice theory for climate scientists? For college professors generally? What would it teach us?

    • asdf says:

      For the most part it probably just teaches you to be more cynical.

      Asking “Cui Bono” has been part of figuring out whats going on and what is likely to happen going forward since cave man times. Adding in non-economic selfish incentives really doesn’t change the underlying message of public choice theory, “assume everyones working and angle and doesn’t have your best interests in mind unless they coincide with their own.”

    • Andrew' says:

      Yes, of course. Are you new here?

  10. Bueller says:

    Thank you for a thoughtful post, though (like some of the other readers), I’d ask why self-interest needs to be manifested in overtly economic terms. Yes, in many instances, self-interest will ultimately lead to some favorable economic outcome; however, that need not be the only source of self-interest. For instance, might self-interest not include a desire to exercise some measure of control/authority over others (an evolutionary remnant, perhaps)? If we conceive of self-interest more broadly, it becomes easier to see how, say, judges – each, most assuredly, the king of his/her courtroom – use the power of the state to pursue their respective self-interests. Also, please see this note for one example of the literature exploring whether and how judges can be susceptible to self-interest.

    • Andrew' says:

      This is where some engineering-style training would help economics.

      The marginal economic maximizing man would be known as a simplifying assumption in engineering. It would not be seen as a natural law and certainly not a policy prescription.

      • Bueller says:

        A fair point, though simplifying assumptions are not without their own problems. While recently reading Overcomplicated, the author used a version of the old joke:

        A dairy farmer, interested in increasing the milk yield of his cattle, brings in two consultants to help him: a biologist and a physicist. The biologist goes off and after a week comes back with a detailed report on what to do for each cow, depending on weather conditions, the size and type of cow, and so forth. The report is over 300 pages long, but the farmer is assured that following the various procedures will result in an average increase in milk yields of about 3-5 percent. The physicist goes off and comes back three hours later, announcing a general and powerful solution to increase yields by over 50 percent. “How so?” asks the farmer. “Well,” replies the physicist, “first, you assume a spherical cow…”

        Simplifying assumptions can be helpful, within limits.

        • Roger Sweeny says:

          Actually, physicists argue about whether it is better to model a cow as a sphere or a cylinder.

          Or at least they joke about it.

  11. R Richard Schweitzer says:

    “This is where some engineering-style training would help economics.”

    More likely, “engineering style” is what led to the Samuelson Stagnation in examining economic theory.

  12. Levi Russell says:

    “In any case, one rebuttal that leaps out at me is the fact that so many people vote, given the extreme unlikelihood that one’s vote will determine the election outcome, and the rather large unlikelihood that the election outcome really will directly affect your personal well-being in a deterministic way.”

    But if we simply specify the costs and benefits subjectively, we can see that the signaling game played through voting (specifically signaling in-group status by doing one’s “civic duty”) could easily increase benefit sufficiently to cover the cost. You can call this “behavioral public choice” if you want, but subjectivity of costs and benefits is just plain ole good economics IMO.

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