Chapter 5
Public Choice and the Political Process
The Supply of Public Goods Through Political Institutions
Public Choice involves decisions being made through political interaction of many persons according to pre-established rules.
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 Shares or Tax Prices
Tax shares, shares, sometimes called tax prices,, are pre-announced levies prices assigned to citizens. They are a portion of the unit cost of a good proposed to be provided by government. t i = tax share to individual i Σ t i = average cost of good
Individual's Choice
Individuals make choices given their most preferred political outcomes. 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
Z
x t i a T
Tax per Unit of Output
MBi
0
Q*
Output per Year
The Choice to Vote or Not
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 to fail to gather the information and then 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
Figure 5.2 Political Equilibrium Under Majority Rule With Equal Tax Shares ,t
s o C,
gr a M
e n e B l a ni
ti f
T d n a
D( x a
MC = AC
E
) 350 sr al l o
Σ
t
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MB
MB A
1
2
MBB
MBC
MBM
MBF
MBG
3 4 5 6 7 Security Guards per Week
MBH
Median Voter Model
The median voter model assumes that the voter whose most-preferred outcome is the median of the mostpreferred political outcomes of all those voting will become the political equilibrium.
Voting to Provide Security Protection and Election Result under Simple Majority Rule Increase Security Guards per Week to:
Voters
Result
1
2
3
4
5
6
7
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
Pass
Pass
Pass
Pass
Fail
Fail
Fail
Implications of Median Voter Model
Only the median voter gets his mostpreferred outcome. Others get either too little or too much.
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.
Political Transactions Costs
Political Transactions Costs are the measures of the value of time, effort, or other resources expended to reach or enforce a collective agreement.
Uniqueness and Cycling of Outcomes Under Majority Rule Voter Rankings For Fireworks Displays per Year Voter
First Choice
Second Choice
Third Choice
A
3
2
1
B
1
3
2
C
2
1
3
Preferences
Single-peaked preferences a unique optimal outcome exists
Multi-peaked preferences as people move away from their most preferred outcome, they become worse off until a certain certain point. point. After that point, as they move further away from their most-preferred outcome they become better off.
Figure 5.3 Voter Rankings of Alternatives A
A
r
fo f
ti f
e n e B t e N
e B t e N 0
1
2
Multiple Peaks
fo
Single Peak
ti
r
3
e n
0
1
2
3
Fireworks Displays per Year A
r
fo
r
fo
Single Peak
ti
ti
f
f e B t e N
A
Single Peak
e n e B t e N
e n
0
1
2
3
0
1
2
3
Fireworks Displays per Year
Election 1: How Many Fireworks Displays per Year, 1 vs 2
B votes for 1 A and C vote for 2 Result 2 wins
Election 2: How Many Fireworks Displays per Year, 3 vs 1
A votes for 3 B and C vote for 1 Result 1 wins
Election 3: How Many Fireworks Displays per Year, 2 vs 3
C votes for 2 A and B vote for 3 Result 3 wins
Pairwise Cycling
Pairwise cycling is a phenomenon in which each outcome can win a majority, depending on how it is paired on a ballot.
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 Arrow’s 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 are not influenced by the order in which they are presented. Public choices choices must not be affected affected by the elimination elimination or addition of alternatives to the ballot. Public choice, like all economic choices, 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
Election 1: How Many Fireworks Displays per Year, 1 vs 2
B votes for 1 A and C vote for 2 Result 2 wins
Election 2: How Many Fireworks Displays per Year, 3 vs 1
A votes for 3 B and C vote for 1 Result 1 wins
Election 3: How Many Fireworks Displays per Year, 2 vs 3
A votes for 3 B and C vote for 2
Result 2 wins
Net Result: if “2” is on the ballot, it wins
Figure 5.4 The Median Peak as the Political Equilibrium under Majority Rule Medium Peak Peak for (Voter C ) ti f B t e N
Voter B'
e n e
0
Peak for Voter A
1 2 3 Fireworks Displays per Year
Figure 5.5 Declining Marginal Benefit of a Pure Public Good, Meaning That Preferences are Single Peaked f B t e N
B l a ni gr a M
e n e
e n e
ti
ti ti f p x a T d n a
n U r e t
MB 0
Q*
Output of a Pure Public Good
Political Processes
Constitutions Minority Rule Majority Rule
Costs and Benefits of Collective Action
Benefit:
decrease in political externalities
Cost:
increase in political transaction costs
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
Political Institutions in U.S. Cities
In the United States, municipal government takes two basic forms.
City Manager Form: The city manager makes mak es day-to-day decisions, and advises elected officials. The mayoral and council cou ncil elections are typically nonpartisan.
Mayor – City Council Form: The mayor makes day-to-day decisions and elections are typically partisan.
Researchers have found that relative to cities run by managers, those run by elected mayors:
have greater capital stock (roads, parks, police and fire stations), use relatively less labor in providing public services, spend the same amount of money.
Figure 5.6 The Median Voter And Political Platforms
ti f B t e N
e n e
Net Benefit for the Median Voter
Q* 0 Output of Government Goods and Services per Year
Forms of City Government and their Effects on Spending
Manager/Council Governmen Governmentt
Mayoral Governmen Governmentt
Unelected city manager makes most executive decisions, with policy recommendations by elected city council. 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
o V o r e b m u N
sr et
f
Q* 0 Output of Government Goods and Services per Year
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 other issues.
Implicit Logrolling
Implicit logrolling occurs when political interests succeed in pairing two (or more) issues of strong interest to divergent groups on the same ballot or the same bill.
The willingness of each special-interest group to vote for the combined package is a function of the relative intensity of preference on the two issues.
State Government Spending and the size of the Legislature
The theory of logrolling suggests that, as more districts are available to distribute the costs of public spending, there will be more incentives for individual legislators to engage in vote trading tr ading to expand state government spending.
Researchers found a positive relationship between the size of the state Senate and spending.
Spending on highways and education were most affected by the size of the legislature.
Figure 5.8 Logrolling )
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ni gr a M
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a
a T d n
sr al l o D( x
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300 250
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100
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n e B l a ni gr a M
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s o C MBB
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0
1
Fireworks Displays per Week MC = MSC
600 500
250 a 200 ,t
B
300 a 250
1 )
sr al
Σ
MB t
MBB
MB A MBC
0 1 Security Guards and Fireworks Displays per Week
t
Special Interests
Special Interests are groups that lobby on particular issues. An example of a special s pecial 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 budgets, not the efficiency of the outcomes they generate. This causes bureaucrats to have a self-interest in inefficiently high levels of government spending.
Figure 5.9 Bureaucracy and Efficiency d n a
al l o D(
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) A sr
t
A MSC E
s o C
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Output per Year
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