Chapter 5

Public Choice and the Political

Process

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Learning Objectives
After reading this chapter, you should be able to:
 Define a public choice and the concept of political equilibrium
 Explain how voting decisions are influenced by tax shares
 Discuss incentives to vote
 Discuss the characteristics of political equilibrium for a single
public good under majority rule, the importance of median vote,
and how cycling of outcomes can result when all voters do not
have single peaked preferences
 Describe the role of political parties and special interest
groups in the political process
 Show how logrolling can influence political equilibrium
 Analyze how bureaucrats behave and how they can influence
political outcomes
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The Supply of Public Goods Through Political Institutions
 Public Choice involves decisions being made through
political interaction of many persons according to pre-
established rules.

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 Shares or 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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 Individual's Choice
 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.

The Choice to Vote or Not

 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.
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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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Median Voter Model
 The median voter model assumes that the voter who
se most-preferred outcome is the median of the
most-preferred political outcomes of all those voting
will become the political equilibrium.

Implications of Median Voter Model

 Only the median voter gets his most-preferred outco
me.
 Others get either too little or too much.

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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.

Political Transactions Costs

 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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Preferences

 Single-peaked preferences
 a unique optimal outcome exists

 Multi-peaked preferences
 as people move away from their most preferred out
come, they become worse off until a certain point.
After that point, as they move further away from
their most-preferred outcome they become better
off.

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Pairwise Cycling

 Pairwise cycling is a phenomenon in which each out

come can win a majority, depending on how it is
paired on a ballot.

Arrow's Impossibility Theorem

 It is impossible to devise a voting rule that meets a s
et of conditions that can guarantee a unique political
equilibrium for a public choice.

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Conditions of Arrow’s 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 are not influenced by the order in which
they are presented.
 Public choices must not be affected by the elimination or
addition of alternatives to the ballot.
 Public choice, like all economic choices, should be
transitive.

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Political Processes
 Constitutions
 Minority Rule
 Majority Rule

Costs and Benefits of Collective Action

 Benefit:
decrease in political externalities

 Cost:
increase in political transaction costs

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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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Political Institutions in U.S. Cities
 In the United States, municipal government takes two basic
forms.
 City Manager Form: The city manager makes day-to-day
decisions, and advises elected officials. The mayoral an
d council elections are typically nonpartisan.
 Mayor – City Council Form: The mayor makes day-to-
day decisions and elections are typically partisan.

 Researchers have found that relative to cities run by

managers, those run by elected mayors:
 have greater capital stock (roads, parks, police and fire
stations),
 use relatively less labor in providing public services,
 spend the same amount of money.

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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 elect
ed 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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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 other issues.

Implicit Logrolling
 Implicit logrolling occurs when political interests succeed in
pairing two (or more) issues of strong interest to divergent
groups on the same ballot or the same bill.
 The willingness of each special-interest group to vote for the
combined package is a function of the relative intensity of
preference on the two issues.
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State Government Spending and the size of the Legislature
 The theory of logrolling suggests that, as more districts
are available to distribute the costs of public spending,
there will be more incentives for individual legislators to
engage in vote trading to expand state government
spending.
 Researchers found a positive relationship between the size
of the state Senate and spending.
 Spending on highways and education were most affected
by the size of the legislature.

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Special Interests

 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

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Bureaucracy and the Supply of Public Output

 Officials measure their power in terms of the size of

their budgets, not the efficiency of the outcomes
they generate. This causes bureaucrats to have a
self-interest in inefficiently high levels of government
spending.

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Key Terms
 Public Choice - a choice made through public interaction of
many people according to established rules.
 Political equilibrium - is an agreement on the level of
production of one or more public goods.
 Tax Shares - sometimes called tax prices, are pre-announced
levies assigned to citizens.
 Median Voter - one whose most-preferred outcome is the
median of the most-preferred outcomes of all those voting.
 Political externalities - are losses in well-being that occur
when voters do not obtain their most-preferred outcomes,
given their tax shares.
 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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 Pairwise cycling is a phenomenon in which each
outcome can win a majority, depending on how it is
paired on a ballot.
 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.
 Implicit logrolling occurs when political interests
succeed in pairing two (or more) issues of strong
interest to divergent groups on the same ballot or the
same bill.
 Bureaucracy - a government body in charge of
implementing public choices made through political
institutions.
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 Prepared by:
Garcia, Ma. Clarissa
Gatchalian, John Aeron
Gutierrez, Kay Anne

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