the role of government. public choice theory so far we have discussed how the government intervenes...
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THE ROLE OF GOVERNMENT
PUBLIC CHOICE THEORY
So far we have discussed how the government
intervenes when there is a market failure:
Externalities, positive and negative.
To correct for market failures, the gov. encourages
those things which have positive externalities, and
discourages things with negative externalities.
Examples: taxing or subsidizing
WHEN GOVERNMENT FAILS
The Public Choice theory addresses
the failure of government and how to
balance the evaluation of the role of
government.
PUBLIC CHOICE THEORY
Ideally, in a democratic society, we see the role of
government as trying to improve society.
Political Leaders: wise, just , dedicated, self- sacrificing OR
Stupid, incompetent, corrupt and self-serving
the conventional view is that a responsible electorate can
(and should) vote these less desirables OUT of office.
Therefore, poor leadership is generally to be blamed on
political apathy!
PUBLIC CHOICE THEORY
BUNK! Say the Public Choice
Theorists
When government is studied using the
tools of economics, PCT say it fails more
often than markets fail.
PUBLIC CHOICE THEORY
Why?
• Not much difference in the parties.• Special interest prevails over the
public good• It is rational not to vote• Bureaucrats are inefficient
It is not a matter of getting the right people in
government]
Government fails because bureaucrats want to
maximize their ability to gain votes and power
Self-interest
PUBLIC CHOICE THEORY
People respond to incentive!
Why does self interest lead to the public good in a
private market but not to the public good in the
government sector?
PUBLIC CHOICE THEORY
Key Ideas:
Is it rational for government leaders
to favor special interests over the
general public interest?• Concentrated versus special
interests• Information costs
PUBLIC CHOICE THEORY
Special interests have a big stake in Gov. so big interest.
They give politicians contributions and support ( politicians
KNOW that).
Each member of the public may lose a little when special
interest gets its way, so public doesn’t pay attention.
Public is ignorant.
Politician goes with special interest.
The more concentrated the benefit to the special interest and
the more diffused the cost is to the public, the more likely the
special interest will get its way.
PUBLIC CHOICE THEORY
Why are politicians mainly in the middle of the road?
The median-voter hypothesis predicts that
politicians, regardless of party, will appeal to the
median voter in the constituency they represent.
Politicians will take a more extreme position in the
primary election (when they are appealing to the
median voter in their party) than in the general
election.
PUBLIC CHOICE THEORY
PUBLIC CHOICE THEORY
Why are people rational or irrational when
they spend little time evaluating candidates
before they vote and when they don’t vote?
Concept of rational ignorance.
Why be informed about something when your
vote counts so little? Why even vote?
PUBLIC CHOICE THEORY
If this is true, why do people vote?• The Public choice theory says
voting is a consumption activity.• Voting gives people a feeling that
they did their civic duty.• They can complain without guilt.
What is the effect of bureaucratic entrepreneurs on
government?• Business wants to maximize profits.• A bureaucrat is successful if they maximize their
power.• They are rewarded when they expand the
department.• If they are more efficient , they have a smaller
department• Incentive to expand, not reduce their departments.• Larger means more power, higher salary, bigger
office larger pension, etc.• Activity #58