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The theory of public choice Prof. Fred Foldvary 22 July 2010.

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1 The theory of public choice Prof. Fred Foldvary 22 July 2010

2 Why social problems? Ultimate cause of social problems: Ignorance, apathy, and greed. Greed is wanting and taking more than one morally deserves. Which governance minimizes ignorance, apathy and greed?

3 “Public choice” The branch of economics consisting of theory applied to collective decisions and their processes and outcomes.

4 Choice Private choice: made only for oneself. Public choice is for oneself and others. Voting is a public choice. Legislation and policy decisions are public choices. Bureaucracies make public choices.

5 Public choice in voting In a large election, the probability of one vote changing the outcome is tiny. In some elections, there are many candidates and propositions. Most voters do not spend much time and effort to become well informed. Ignorance breeds apathy.

6 The median voter For a policy such as how much to spend on parks, there is a spectrum of opinion.

7 The median rules The median voter is the one at which half want more spending and half want less. In a two-party system, the candidates move towards the median voter position. Those at the tails (fringes) are ignored. This can result in the tyranny of the majority.

8 Transfer seeking (rent seeking) Offering and making payments to office seekers and holders and their political parties in order to obtain privileges such as transfers of funds and protection from competition.

9 Transfer seeking The transfer seekers have concentrated interests, each getting a lot. The costs to the public are thinly spread. Example: U.S. quotas on sugar imports. The cost of production is higher in the U.S. Candy makers (Lifesavers) moved to Canada, where they could buy sugar at the world price, including Cuban sugar. Result: lost jobs, more imports.

10 Small-group voting Transfer seeking and the rule of the median can be reduced by decentralizing voting. Small-group elections increase voting power and reduce the need for funds. Voters can personally know the candidates. Local councils can join to elect higher level councils.

11 Cellular Voting Size of a cell: small enough for face- to-face contact, large enough for contested elections. Just as a biological body is divided into cells, so too the political body can be based on small cells as the foundational political unit.

12 Calculus of Consent "where possible, collective activity should be organized in small rather than large political units.” Buchanan and Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962).

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