A Political Mystery .

LESSON 15 PUBLIC CHOICE ECONOMICS

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HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

A Political Mystery . . .• U.S. senator from a Northwestern state

votes for a bill that will increase the price of lumber grown in the United States.

• Lumber is used to build new homes.• Experts agree that passing this bill will

increase the price of new homes.– 1,000 timber producers– 1,000,000 potential new home buyers– Bill would add about $100 to cost of each new

home.


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A Political Mystery . . .

• Senators from the Midwest oppose the billbut it passes eventually.

• Why would a senator from the Northwest— along with a majority of the Senate—knowingly pass a bill that will increase the price of new homes?


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A Political Mystery . . .

• Who would benefit from this law?

• Who would be harmed?


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Public Choice Theory 101• Elected officials

– Most elected officials are responsible individuals who want to serve their constituents.

– Most elected officials also want to be re-elected—so that they may continue to serve their constituents.

• Voters– Most voters are busy with their private lives. They do

not choose to spend much time and energy following the daily work of elected officials or government administrators and employees.

– Voters are often uninterested in government policies and uninformed about candidates or propositions in an election.


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Public Choice Theory 101• Campaigns

– The cost of running for office is too high for most elected officials to pay personally.

– People seeking elected office rely on contributions from voters and groups with special interests in particular government policies.

– Many voters join special-interest groups to support people seeking elected office who are in line with their special concerns. Examples of special-interest groups: the elderly; business, labor, and agricultural groups; teachers and educational organizations; environmental groups; religious groups; and people receiving various kinds of assistance payments or programs from government agencies.


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Government Failure• Occurs when the costs of a government

intervention outweigh the benefits of the government intervention.

• Example of special-interest effect:– Lobbying by sugar manufacturers might result in a

subsidy for the production of sugar that raises the price paid by consumers.

– The cost of this policy, shared by all citizens, is barely noticed by individuals.

– Benefits are shared by the special-interest group (sugar manufacturers) who have a strong incentive to perpetuate the policy by further lobbying.


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Costs and Benefits of Voting: Election 1

a. What are total benefits of Option A?

b. What are total benefits of Option B?

c. If all five groups have equal numbers of voters, will Option A or B be chosen?

Group Benefits

Option A Option B

1 $0 $5

2 $0 $5

3 $3 $0

4 $3 $0

5 $5 $0


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Costs and Benefits of Voting:Election 2

a. Why did Option B defeat Option A?

b. Did Election 2 result in the most social (overall) benefit?

Group Benefits

Option A Option B

1 $0 $5

2 $0 $5

3 $3 $0

4 $3 $0

5 $5 $0


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Costs and Benefits of Voting: Optional Election

Group Benefits

Option A Option B

1 $0 $10

2 $0 $10

3 $3 $0

4 $3 $0

5 $5 $0

a. Why did Option A defeat Option B?

b. Did this election result in the most social (overall) benefit?


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Logrolling

• Logrolling is the trading of favors, such as reciprocal voting among legislative members to ensure action on issues of interest to them and their constituents

• A vote trade is like a legislative IOU. When a legislator needs a few more votes to pass a bill, she may give another legislator an IOU: she will vote for another piece of legislation in return for a vote on her own bill.


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Logrolling Across The Land

ProgramsDefense Contract

(in billions)Farm Subsidies

(in billions)

VoterBenefits to constituen

ts

Costs to constituen

ts

Benefits to constituen

ts

Benefits to constituen

tsEastern senator $40 $20 $5 $20Midwestern senator $5 $20 $40 $20

Western senator $5 $20 $5 $20

Documents

A Political Mystery .