how many decisions affecting our daily life are made through the political process? what is public...
TRANSCRIPT
• 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
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• Education system and quality• Road and Transportation
Network• Public Health Care Services• National Defense • Social Security and Safety
Learning objectives
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Supply of Public Goods Through Political InstitutionsPolitical EquilibriumTax Shares or Tax Prices Individual's ChoiceDeterminants of Political EquilibriumPolitical ExternalitiesPolitical Processes
In Em, M. sc. in Economics
The Supply of Public Goods Through Political Institutions
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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
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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
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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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Individual's Choice
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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.
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Figure 5.1 Most Preferred Political Outcome of A Voter
Tax per Unit of Output
ti
MB i
Q*
Z
Ta
x
Output per Year 0
In Em, M. sc. in Economics
The Choice to Vote or Not
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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
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The public choice ruleaverage and marginal costs of the public goodinformation available on the cost and benefitthe distribution of the tax sharesdistribution of benefits among voters
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Figure 5.2 Political Equilibrium Under Majority Rule With Equal Tax Shares
350 MC = AC
50 t
MB
E
Mar
gin
al B
enef
it,
Co
st a
nd
Tax
(D
oll
ars)
Security Guards per Week 0 1 2 3 4 5 6 7
MBA MBB MBCMBF
MBG MBHMBM
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Median Voter Model
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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
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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
In Em, M. sc. in Economics
Implications of Median Voter Model
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Only the median voter gets his most-preferred outcome.
Others get either too little or too much.
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Political Externalities
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Political Externalities are the losses in well-being that occur when voters do not obtain their most-preferred outcomes, given their tax shares.
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Political Transactions Costs
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Political Transactions Costs are the measures of the value of time, effort, or other resources expended to reach or enforce a collective agreement.
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Political Processes
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ConstitutionsMinority RuleMajority Rule
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Costs and Benefits of Collective Action
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Benefit: decrease in political externalities
Cost: increase in political transaction costs
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Possible Alternatives Methods
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UnanimityRelative 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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Special Interests
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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
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Thank you!