1. ECO 481: Public Choice Theory
Week 10: Government Exploitation
& Schools
Dr. Dennis Foster

2. Exploitation
“Purposive political or rent-seeking efforts [that] increase one’s wealth or income at the expense of others.”
In private sector, profit = social gain.
In public sector, profit (rent) = misallocation.
What is the most powerful entity in society?
The Government!!!

3. Exploitation - Taxation
State sets the rules, but there are limits. SR LR
Taxes
Rate T’ T*
Laffer Curve & taxes: --Long run vs. short run. --In SR  rates =  revenue
Minn % inc. tax!
Illinois Increasing to 5%.

4. Exploitation - BureaucracyMB MC
Q* Q’ $
Tend to find Q where TB = TC.
Asymmetric information issue. [Niskanen]
Voting with our feet is costly.
Wage issue
Higher/benefits
Overpaid? Not if XS S.
“The public bureaucracy is overstaffed, overpaid, overqualified, and well protected.”

5. Exploitation: Manipulating Median Voters
Choose budget or doom!
If Xr = revision budget, voter will take up to Xb.
BOAPW - Set Xr = 0!!!
Do median voters know what is efficient?
Also, small incremental tax hikes hardly muster opposition.
Private
Text Error
Public
Xr X Xb

6. Manipulating Voters Zach Erica James X* Pub Pri X* Pub Pri X* Pub Pri
Xr’
Xr’
Xr’ Xr Xr Xr
No!
No!
No!
Yes!
Yes!
Yes!
By choosing the optimal revision budget, the school
district can entice voters to pass it’s preferred budget, X*.

7. Exploitation - Education
K-12: violating consumer sovereignty
Is it really free?
School, curriculum, teachers, pedagogy
Elitism?
Why is monopoly good?
What’s wrong with vouchers?
Universal pre-K? What’s next?
Homeschooling & charter schools.

8. Exploitation - Education
The University – a riddle wrapped …
“Following … Buchanan … one might say that [the university] combines students as consumers who do not buy with faculties or producers who do not sell and taxpayers or owners who do not control.”
Administration – growth & income
Bloat data
Faculty – min. workload & tenure & income
Controllable – research, admissions, peers
Elitism & Rhetorical extremism.

9. Exploitation - Education
Some observations from NAU +/-
Workloads can be varied, but …
Research requirements,
Professional qualifications,
Service requirements.
Accreditation as oversight.
Standards lowest in AZ – ABOR
“Our job is to graduate students” vs. reputation.
AZ - post tenure review; ASU-West.
Individual college differ
FCB & CEFNS vs. Ed.

10. Limits on Exploitation
Consumers will move over time.
Demographic map.
Sprawl beyond Flagstaff city limits.
Charter schools.
More competition with on-line universities.
Straining budgets are bursting.

11. Percent change in residential population, 2000-2010

12. ECO 481: Public Choice Theory
Week 10: Government Exploitation
& Schools
Dr. Dennis Foster