How many decisions affecting our daily life are made through the political process? What is public choice? What is the relationship of public choice and political process? Chapter 5 Public Choice and Political Process In Em, M. sc. in Economics 1 Education system and quality Road and Transportation Network Public Health Care Services National Defense Social Security and Safety

Learning objectives 2 Supply of Public Goods Through Political Institutions Political Equilibrium Tax Shares or Tax Prices Individual's Choice Determinants of Political Equilibrium Political Externalities Political Processes In Em, M. sc. in Economics

The Supply of Public Goods Through Political Institutions 3 Public Choice involves decisions being made through political interaction of many persons according to pre-established rules. In Em, M. sc. in Economics

Political Equilibrium 4 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. In Em, M. sc. in Economics

Tax Shares or Tax Prices 5 Tax shares, sometimes called tax prices, are pre- announced levies 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  t i = average cost of good In Em, M. sc. in Economics

Individual's Choice 6 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. In Em, M. sc. in Economics

7 Figure 5.1 Most Preferred Political Outcome of A Voter Tax per Unit of Output titi MB i Q* Z Tax Output per Year 0 In Em, M. sc. in Economics

The Choice to Vote or Not 8 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. In Em, M. sc. in Economics

Determinants of Political Equilibrium 9 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 In Em, M. sc. in Economics

10 Figure 5.2 Political Equilibrium Under Majority Rule With Equal Tax Shares 350 MC = AC 50 t  MB E Marginal Benefit, Cost and Tax (Dollars) Security Guards per Week MB A MB B MB C MB F MB G MB H MB M In Em, M. sc. in Economics

Median Voter Model 11 The median voter model assumes that the voter whose most-preferred outcome is the median of the most- preferred political outcomes of all those voting will become the political equilibrium. In Em, M. sc. in Economics

Voting to Provide Security Protection and Election Result under Simple Majority Rule 12 Increase Security Guards per Week to: VotersAYNNNNNN BYYNNNNN CYYYNNNN MYYYYNNN FYYYYYNN GYYYYYYN HYYYYYYY Result Pass Fail In Em, M. sc. in Economics

Implications of Median Voter Model 13 Only the median voter gets his most- preferred outcome. Others get either too little or too much. In Em, M. sc. in Economics

Political Externalities 14 Political Externalities are the losses in well- being that occur when voters do not obtain their most-preferred outcomes, given their tax shares. In Em, M. sc. in Economics

Political Transactions Costs 15 Political Transactions Costs are the measures of the value of time, effort, or other resources expended to reach or enforce a collective agreement. In Em, M. sc. in Economics

Political Processes 16 Constitutions Minority Rule Majority Rule In Em, M. sc. in Economics

Costs and Benefits of Collective Action 17 Benefit: decrease in political externalities Cost: increase in political transaction costs In Em, M. sc. in Economics

Possible Alternatives Methods 18 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 In Em, M. sc. in Economics

Special Interests 19 Special Interests are groups that lobby on particular issues. An example of a special 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 In Em, M. sc. in Economics

End of Chapter 5 In Em, M. sc. in Economics 20 Thank you!