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Chapter 5
Public Choice and the Political Process
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Intro
Public expenditures and taxes affect daily life
Democracy Theory of Public choice studies
how decisions to allocate resources and redistribute income are made through a nation’s political system.
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Plan
I. Offre de biens collectifs
II. Modèle d’équilibre (règle de majorité)
III. Equilibres uniques et cycliques
IV. Processus politique
V. Parties politiques
VI. Groupes d’intérêt
VII. Bureaucratie
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I – Offre de biens collectifs
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The Supply of Public Goods Through Political Institutions
Public Choice is when decisions are made through political interaction of many persons according to pre-established rules.
Public choice vs. private choice
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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.
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Tax Sharesor tax prices
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.
ti = tax share to individual i
ti = average cost of good
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Information on costs difficult to obtain.
Proposals that cannot gain approval under unamimous consent might be approced under majority rule
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Individual's Choice
The individual makes choices given what will be the most preferred political outcome to them.
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.
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Figure 5.1 The Most Preferred Political Outcome of A Voter
Ta
x
Tax per Unit of Output
Output per Year 0
ti
Q*
MB i
Z
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The Choice to Vote or Not
Decision to vote depends on benefits, costs and the probability that voting will achieve the anticipated benefits.
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 not to gather the information and not to vote.
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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
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II – Équilibre politique (règle de majorité)
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Figure 5.2 Political Equilibrium Under Majority Rule With Equal Tax Shares
Ma
rgin
al B
en
efi
t,C
os
t, a
nd
Ta
x (
Do
llars
)
Security Guards per Week 0
50
350 MC = AC
t
MBA MBB MBC
MB
E
1 2 3 4 5 6 7
MBFMBG MBHMBM
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Voting to Provide Security Protection and Election Result
under Simple Majority Rule Increase Security Guards per Week to:
1 2 3 4 5 6 7
Voters 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
Result Pass Pass Pass Pass Fail Fail Fail
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Median Voter Model
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.
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Implications of Median Voter Model
Only the median voter gets his most-preferred outcome (not 51% of voters).
Others get too little or too much. The greater the dispersion, the greater
the dissatisfaction The more voters’ preferences are
clustered, the greater the satisfaction
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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.
Equal to zero if tax shares are adjusted to marginal benefits
Political externalities don’t exist under unanimous consent.
More inclusive majorities protect minorities
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Political Transactions Costs
Political Transactions Costs are the measure of the value of time, effort, or other resources expended to reach or enforce a collective agreement.
Citizens must weigh political externalities and political transaction costs
Representative government economize on political transaction costs
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III - Equilibres uniques et cycliques
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Uniqueness and Cycling
A unique political equilibrium may not emerge under majority rule
The outcome can depend on the order in which alternatives are presented
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Uniqueness and Cycling of Outcomes Under Majority
Rule
Voter First Choice Second Choice Third Choice
A 3 2 1
B 1 3 2
C 2 1 3
Voter Rankings For Fireworks Displays per Year
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Preferences Single-peaked preferences
a unique optimal outcome exists Multi-peaked preferences
as a person moves away from their most preferred outcome they become worse off until a certain point when moving further away from their most-preferred outcome makes them better off.
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Figure 5.3 Voter Rankings of Alternatives
Ne
t B
en
efi
t fo
r A
Single Peak
0
Fireworks Displays per Year
Ne
t B
en
efi
t fo
r B
Multiple Peaks
0
Ne
t B
en
efi
t fo
r C
Single Peak
0
Fireworks Displays per Year
1 2 3 2 3
1 2 3
1
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Pairwise Cycling
Pairwise cycling is the phenomenon in which each outcome can win a majority depending on how it is paired for voting.
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Pairwise CyclingVoter First Choice Second Choice Third Choice
A 3 2 1
B 1 3 2
C 2 1 3
Election 1 1 display per year 2 displays per year
A X
B X
C X
Totals 1 vote 2 votes
Result : 2 displays per year wins
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Pairwise CyclingVoter First Choice Second Choice Third Choice
A 3 2 1
B 1 3 2
C 2 1 3
Election 2 2 displays per year 1 display per year
A X
B X
C X
Totals 1 vote 2 votes
Result :1 display per year wins
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Pairwise CyclingVoter First Choice Second Choice Third Choice
A 3 2 1
B 1 3 2
C 2 1 3
Election 3 2 displays per year 3 displays per year
A X
B X
C X
Totals 1 vote 2 votes
Result : 3 displays per year wins
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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.
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Conditions of Arrows 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 must not be influenced by the order in which they are presented.
Public choices must not be affected by the elimination or addition of an alternative to the ballot.
Public choice should be transitive.
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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
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Figure 5.3 Voter Rankings of Alternatives
Ne
t B
en
efi
t fo
r A
Single Peak
0
Fireworks Displays per Year
N
et
Be
ne
fit
for
B’
Single Peak
0
Ne
t B
en
efi
t fo
r C
Single Peak
0
Fireworks Displays per Year
1 2 3
1 2 3 1 2 3
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Pairwise CyclingVoter First Choice Second Choice Third Choice
A 3 2 1
B’ 1 2 3
C 2 1 3
Election 1 1 display per year 2 displays per year
A X
B’ X
C X
Totals 1 vote 2 votes
Result : 2 displays per year wins
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Pairwise CyclingVoter First Choice Second Choice Third Choice
A 3 2 1
B’ 1 2 3
C 2 1 3
Election 2 3 displays per year 1 display per year
A X
B’ X
C X
Totals 1 vote 2 votes
Result :1 display per year wins
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Pairwise CyclingVoter First Choice Second Choice Third Choice
A 3 2 1
B’ 1 2 3
C 2 1 3
Election 3 2 displays per year 3 displays per year
A X
B’ X
C X
Totals 1 vote 2 votes
Result : 2 displays per year wins
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Figure 5.4 The Median Peak as the Political Equilibrium under Majority Rule
Ne
t B
en
efi
t Medium Peak
(Voter C)
Fireworks Displays per Year 0
Peak for Voter A
Peak for Voter B'
1 2 3
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Figure 5.5 Declining Marginal Benefit of a Pure Public Good Meaning That Preferences are Single Peaked
0
MB
t
Ma
rgin
al B
en
efi
t a
nd
Ta
x p
er
Un
it
Ne
t B
en
efi
t
Q* Output of a Pure Public Good
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IV – Processus politique
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Political Processes
Constitutions Minority Rule Majority Rule
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Costs and Benefits of Collective Action
Benefit: decrease in political externalities
Cost: increase in political transactions cost
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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
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Figure 5.6 The Median Voter And Political PlatformsN
et
Be
ne
fit
Output of Government Goods and Services per Year 0
Net Benefit for the Median Voter
Q*
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Forms of City Government and their Effects on Spending
Manager/Council Government Unelected city manager makes most executive
decisions with policy recommendations by elected city council.
Mayoral Government Elected mayor makes most executive decisions.
Results Similar total expenditures Mayoral systems utilize more capital intensive
public goods production
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Figure 5.7 Number of Voters and Government Output
Nu
mb
er
of
Vo
ters
Output of Government Goods and Services per Year 0 Q*
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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 the other issue.
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Figure 5.8 Logrolling
0
300 250
100
A
MBB
1
t
MCB
0
600
250 200
C
1
t
MC = MSC
500
0
300 250
100
B
1
t
MC
MBA
Ma
rgin
al B
en
efit
,C
os
t, a
nd
Ta
x (
Do
llars
)MB
MBC MBA MBB
MBB
MBA MBB
MBC
Ma
rgin
al B
en
efit
,C
os
t, a
nd
Ta
x (
Do
llars
)
Ma
rgin
al B
en
efit
,C
os
t, a
nd
Ta
x (
Do
llars
) Fireworks Displays per Week
Security Guards and Fireworks Displays per Week
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Special Interests
Special Interests are groups that lobby on a particular issue.
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
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Bureaucracy and the Supply of Public Output
Officials measure their power in terms of the size of their budget, not the efficiency of the outcome they generate. This causes bureaucrats to have a self-interest in inefficiently high levels of government spending.
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Figure 5.9 Bureaucracy and Efficiency
Q*
A
E
B
A
Output per Year
Q’B 0 QB Q*
Ben
efit
an
d
Co
st (
Do
llar
s)
Output per Year
B
Ben
efit
an
d
Co
st (
Do
llar
s)
TSB'
TSB
TSC
MSC
MSB