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.
Tax Revenue
Tax Rate SR LR T*
100%
Laffer Curve: tax rates & tax revenues
Will rate revenues?
Long run vs. short run. T’
Minn % inc. tax!
Illinois Increasing to 5%.

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

5. Exploitation: Manipulating Median Voters
Public preference = X
Bureau preference = Xb
If Xr = revision budget … voters will accept Xb
BOAPW - Set Xr = 0!!!
Do median voters know what is efficient?
Small incremental tax hikes hardly muster opposition.
Public
Private
Text Error X Xr Xb

6. Manipulating Voters Isaac Kristen Jacob X* Pub Pri X* Pub Pri X* Pub
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.
million

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.”
Faculty – min. workload & tenure & income
Controllable – research, admissions, peers
Elitism & Rhetorical extremism.
Administration – growth & income
Bloat data

9. Exploitation - Education
“Most organizations achieve economies of scale over time. As the enterprise serves more customers or produces more goods, it becomes more efficient, requiring fewer people and less money for each customer served or good produced. Achieving larger scale, often with the assistance of technology, has been central to productivity increases and improvements in human welfare for centuries. However, the exact opposite is happening in American universities.”
From 1993 to 2007 (per 100 students):
39% growth in full time administrators
18% growth in employees engaged in instruction +
ASU: 94% increase in administrators
ASU: -2% in employees engaged in instruction +

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

11. 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.

12. Percent change in residential population, 2000-2010

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