Public choice
Public choice, or public choice theory, is "the use of economic tools to deal with traditional problems of political science". It includes the study of political behavior. In political science, it is the subset of positive political theory that studies self-interested agents and their interactions, which can be represented in a number of ways—using standard constrained utility maximization, game theory, or decision theory. It is the origin and intellectual foundation of contemporary work in political economics.
In popular use, "public choice" is often used as a shorthand for components of modern public choice theory that focus on how elected officials, bureaucrats, and other government agents' perceived self-interest can influence their decisions. Economist James M. Buchanan received the 1986 Nobel Memorial Prize in Economic Sciences "for his development of the contractual and constitutional bases for the theory of economic and political decision-making".
Public choice analysis has roots in positive analysis but is sometimes used for normative purposes to identify a problem or suggest improvements to constitutional rules. But the normative economics of social decision-making is typically placed under the closely related field of social choice theory, which takes a mathematical approach to the aggregation of individual interests, welfare, or votes. Much early work had aspects of both, and both fields use the tools of economics and game theory. Since voter behavior influences public officials' behavior, public-choice theory often uses results from social-choice theory. General treatments of public choice may also be classified under public economics.
Building upon economic theory, public choice has a few core tenets. One is that no decision is made by an aggregate whole. Rather, decisions are made by combined individual choices. A second is the use of markets in the political system. A third is the self-interested nature of everyone in a political system. But as Buchanan and Gordon Tullock argue, "the ultimate defense of the economic-individualist behavioral assumption must be empirical The only final test of a model lies in its ability to assist in understanding real phenomena".
Background and development
History of social choice and public choice theory
A 19th-century precursor of modern public choice theory was the work of Swedish economist Knut Wicksell, which treated government as political exchange, a quid pro quo, in formulating a benefit principle linking taxes and expenditures. American statesman and political theorist John C. Calhoun is also seen as a precursor to modern public choice theory. His writings on political economy anticipate the "public choice revolution" in modern economics and political science.Some subsequent economic analysis has been described as treating government as though it attempted "to maximize some kind sort of welfare function for society" and as distinct from characterizations of self-interested economic agents, such as those in business. This is a clear dichotomy, as one can be self-interested in one area but altruistic in another. By contrast, public choice theory models government as made up of officials who, besides pursuing the public interest, may act to benefit themselves, for example in the budget-maximizing model of bureaucracy, possibly at the cost of efficiency.
Modern public choice theory
Modern public choice theory uses the basic assumptions, principles, and methods of microeconomics as analytical tools to study and portray the behavior of subjects in political markets and the operation of political markets. Public choice refers to the process of what public goods are provided, how they are provided and distributed, and the corresponding matching rules that are established. Public choice theory expects to study and influence people's public choice processes to maximize their social utility.Modern public-choice theory, and especially election theory, has been dated to the work of Duncan Black, sometimes called "the founding father of public choice". In a series of papers from 1948, which culminated in The Theory of Committees and Elections, Black outlined a program of unification toward a more general "Theory of Economic and Political Choices" based on common formal methods, developed underlying concepts of what became median voter theory, and rediscovered earlier work on voting theory. His work also included the possibility of entirely random outcomes in a voting structure, where the only determinant of an outcome is where a particular motion falls in a given sequence.
Kenneth J. Arrow's Social Choice and Individual Values influenced the theory of public choice and election theory. Building on Black's theory, Arrow concluded that in a non-dictatorial setting, no predictable outcome or preference order can be discerned for a set of possible distributions. Among other important works are Anthony Downs's An Economic Theory of Democracy and Mancur Olson's The Logic of Collective Action, which was fundamental in beginning the study of special interests. In it, Olson raises questions about the nature of groups. Concentrated groups' incentive to act in their own interest paired with a lack of organization of large groups often results in legislation that benefits a small group rather than the general public.
James M. Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy, considered one of the landmarks in public choice and constitutional economics. The book's preface says it is "about the political organization" of a free society. But its methodology, conceptual apparatus, and analytics "are derived, essentially, from the discipline that has as its subject the economic organization of such a society". Buchanan and Tullock formulate a framework of constitutional decision-making and structures that divides decisions into two categories: constitutional decisions and political decisions. Constitutional decisions establish long-standing rules that rarely change and govern the political structure itself. Political decisions take place within and are governed by the structure. The book also focuses on positive-economic analysis of the development of constitutional democracy in an ethical context of consent. The consent takes the form of a compensation principle like Pareto efficiency for making a policy change and unanimity or at least no opposition as a point of departure for social choice.
Somewhat later, probabilistic voting theory began to displace median voter theory in showing how to find Nash equilibria in multidimensional space. Peter Coughlin later formalized the theory further.
Constitutional economics
Constitutional economics is a research program in economics and constitutionalism that has been described as extending beyond the definition of "the economic analysis of constitutional law" to explain the choice "of alternative sets of legal-institutional-constitutional rules that constrain the choices and activities of economic and political agents". This is distinct from explaining the choices of economic and political agents within those rules, a subject of "orthodox" economics.Constitutional economics studies the "compatibility of effective economic decisions with the existing constitutional framework and the limitations or the favorable conditions created by that framework". It has been characterized as a practical approach to applying the tools of economics to constitutional matters. For example, a major concern of every nation is the proper allocation of available economic and financial resources. The legal solution to this problem falls within the scope of constitutional economics.
Constitutional economics takes into account the significant effects of political economic decisions as opposed to limiting analysis to economic relationships as functions of the dynamics of distribution of "marketable" goods and services. "The political economist who seeks to offer normative advice, must, of necessity, concentrate on the process or structure within which political decisions are observed to be made. Existing constitutions, or structures or rules, are the subject of critical scrutiny".
Decision-making processes and the state
One way to organize what public choice theorists study is to begin with the state's foundations. According to this procedure, the most fundamental subject is the origin of government. Although some work has been done on anarchy, autocracy, revolution, and even war, most study in this area is concerned with the fundamental problem of collectively choosing constitutional rules. Much of this is based on work by James M. Buchanan. It assumes a group of people who aim to form a government, then focuses on the problem of hiring the agents required to carry out government functions the members agree on.Bureaucracy
Another major sub-field is the study of bureaucracy. The usual model depicts top bureaucrats as chosen by the chief executive and legislature, depending on whether the democratic system is presidential or parliamentary. The typical image of a bureau chief is someone on a fixed salary concerned with pleasing whoever appointed them. But most bureaucrats are civil servants whose jobs and pay are protected by a civil service system against major changes by their bureau chiefs. This image is often compared with that of a business owner whose profit varies with the success of production and sales, who aims to maximize profit, and who can in an ideal system hire and fire employees at will. William Niskanen is generally considered the founder of public choice literature on bureaucracy.The anthropological study of bureaucracy has mostly contributed to our understanding of how various institutions of governance operate, why they achieve the outcomes they do, and what their work cultures are. In this sense, the state and its various branches, including village councils and courts of law, have gotten special consideration. A focus has also been placed on non-state welfare and humanitarian organisations, ranging in size from tiny NGOs to significant supranational institutions like the United Nations.