Economic Analysis of Behavior in Government PUBLIC CHOICE THEORY Economic Analysis of Behavior in Government

Public Choice Theory Public choice theory is derived from the research of James Buchanan, Gray Becker, Victor Fuchs, Richard McKenzie, and Gordon Tullock. It applies the analysis most often associated with the study of private markets to behavior in government.

Public Choice Theory Has Been Used to Study Prejudice Immigration Health Crime Spouse seeking Marriage Divorce Fertility

Public Choice 101 Individual behavior in government is influenced by many of the same considerations that influence behavior in markets. What incentives motivate government officials? How do elected and appointed officials face scarcity? How do elected and appointed officials face competition? How do elected officials make voluntary exchange for mutual gain?

Incentives Matter Individual behavior in government is motivated by incentives including: Monetary rewards Recognition Travel Information Influence Personal Satisfaction

Competition: Elected Officials Candidates fact scarcity and competition. They compete to: Win nominations Earn contributions Attract voters Find office space Gain support from colleagues Gain committee assignments Be re-elected

Competition: Non-Elected Officials Non-elected officials face scarcity and competition. They compete to: Increase budgets Obtain better equipment Earn travel funds Earn salary, promotions, and benefits Gain support from colleagues Influence decisions Maintain power

Exchange in Government Elected officials exchange: Service to constituents Funding for state or district projects Support from interest groups In return for: Nomination Votes Contributions Volunteers Re-election

Differences between Markets and Government Private markets depend on voluntary exchange. Private markets have a direct connection between payment and consumption.

Difference between Markets and Government Government can set the rules of the game. Government can use coercion to enforce the rules

Interest Group Effects Interest groups are likely to be successful when: Benefits are concentrated among a few. Costs are spread out over many.

Interest Group Effects Examples of interest group effects include: Tariffs on steel Rent controls in some cities Sugar quotas Milk prices Farm Subsidies Ethanol Subsidies