PUBLIC CHOICE

Individuals make choices to use scarce resources to satisfy their desires. Markets are a
means of establishing prices that influence individual choices to use resources.

Public Choice theory that “…governments can do nothing right because politicians,
bureaucrats, businessmen and citizens act solely from a self-interested perspective
using power and lobby to procure the authority of government for their own selfish
ends”.

A public choice is one made through political interaction of many people according to
established rules. The supply of a public good through political institutions requires
agreements on the quantity of public goods and the means of finance. Political
institutions rarely require unanimous agreement on both the quantity of public goods
to produce and cost sharing scheme.

The theory of public choice is how decisions to allocate resources and redistribute
income are made through a nation’s political system. The political process is, of
course, influenced by factors other than economics, such as ideology. However, from
an economic point of view, the purpose of politics is to provide citizens with useful
goods and services. The political process used to determine the quantity of goods and
services supplied by government in Malawi through authorization through budgetary
approval by cabinet in the national assembly.

Collective or public choices are agreements resulting in political equilibrium on issues

of common concern. The most commonly used public choice rule is simple majority
rule. Under certain circumstances, when two or more alternatives are to be decided
upon, majority rule might be incapable of achieving a unique political equilibrium.
However, when all voters have single-peaked preferences, majority rule will produce a
unique political equilibrium at the median most-preferred outcome. Single-peaked
preferences exist when a unique optimal outcome exists for each individual, such that
movement away from the optimum always makes that individual worse off.

Cabinet collective responsibility is related to the fact that, if a vote of no confidence is

passed in parliament, the government is responsible collectively, and thus the entire
government resigns. The consequence will be that a new government will be formed,
or parliament will dissolve and a general election will be called. Cabinet collective
1
responsibility is not the same as individual ministerial responsibility, which states that
ministers are responsible and therefore culpable for the running of their departments.

The new regime also has public expenditure choices defined with a growth-
orientation, focusing on its contribution to national savings, expenditure on
infrastructure, incentives to invest and cleaning up of the remaining public debt
between enterprises and banks.
Generally, public expenditure choices are becoming more market-orientated,
undertaken like private investment with cost-benefit analyses done prior to
investment. An increasing share of expenditure is also being devoted to health and
education.

Introduction

What is Public Choice?

Public choice is the study of political decision making.
i. It attempts to understand how public policies come to be adopted using
economic models of the impacts of policies on individuals,
ii. and models of individual political behavior under a variety of political
institutions.
iii. It tends to use rational choice models to do so, which is largely what
distinguishes it from mainstream and classical political economy.

Public choice differs from political science, because it generally analyzes political
decisions as consequences of individual choices and model those choices using
analytical models from game theory and economics.
i. Public choice theorists generally assume that all the individual involved in
politics are rational and self-interested economic men and women.
ii. They then analyze how such individual might be expected to behave in various
political settings: as voters, as politicians, as bureaucrats, and so forth.
a. This is not to say that all men and women are narrow income or wealth
maximizers.
b. But, rather to say that the income and wealth effects of public policies
matter to voters, politicians and bureaucrats.
c. Of course, other broader interests also are included in "self" interest.

iii. (Roughly speaking, public choice, and/or rational politics, is the application of
economic models of human action to politics.)
2
Individuals make choices to use scarce resources to satisfy their desires. Markets are a
means of establishing prices that influence individual choices to use resources.

Public Choice theory “governments can do nothing right because politicians,

bureaucrats, businessmen and citizens act solely from a self-interested perspective
using power and lobby to procure the authority of government for their own selfish
ends”.

A public choice is one made through political interaction of many people according to
established rules. The supply of a public good through political institutions requires
agreements on the quantity of public goods and the means of finance. Political
institutions rarely require unanimous agreement on both the quantity of public goods
to produce and cost sharing scheme.

The theory of public choice is how decisions to allocate resources and redistribute
income are made through a nation’s political system. The political process is, of
course, influenced by factors other than economics, such as ideology. However, from
an economic point of view, the purpose of politics is to provide citizens with useful
goods and services. The political process used to determine the quantity of goods and
services supplied by government in Malawi through authorization through budgetary
approval by cabinet in the national assembly.

Collective or public choices are agreements resulting in political equilibrium on issues

of common concern. The most commonly used public choice rule is simple majority
rule. Under certain circumstances, when two or more alternatives are to be decided
upon, majority rule might be incapable of achieving a unique political equilibrium.

Strategizing actions on part of individuals or groups, who might want to enter into
bargaining contracts with other parties in order to secure special benefits? Under such
conditions parties may be persuaded to engage in logrolling (or vote trading) by
forfeiting something they wanted in exchange for something about which the feel
particularly strongly.

However, when all voters have single-peaked preferences, majority rule will produce a
unique political equilibrium at the median most-preferred outcome. Single-peaked
preferences exist when a unique optimal outcome exists for each individual, such that
movement away from the optimum always makes that individual worse off.
3
The new regime also has public expenditure choices defined with a growth-
orientation, focusing on its contribution to national savings, expenditure on
infrastructure, incentives to invest and cleaning up of the remaining public debt
between enterprises and banks.
Generally, public expenditure choices are becoming more market-orientated,
undertaken like private investment with cost-benefit analyses done prior to
investment. An increasing share of expenditure is also being devoted to health and
education.

Political institutions constitute the rules and generally accepted procedures that
evolve in a community for determining what government does and how government
outlays are financed. Through these mediums, individual desires are translated into
binding decisions concerning the extent and functions of government.

Politics also influences the amount of taxes you pay and how the burden of financing
government programs is distributed among citizens. The process is also used to
compete for the favors of government. Politics determines who gets income support
from the government and which businesses are the fortunate recipients of
government subsidies.

The political process is based on rules embodied in a nation’s constitution. In

democratic nations, citizens have the opportunity to vote on issues or for candidates
who take positions on those issues. The outcome of the process depends on voting
and the behavior of a host of characters including politicians, elected officials, special-
interest groups, and bureaucrats.

The political process involves more than merely counting votes and deciding on the
rules for reaching agreement. Agendas for political action are drawn up by political
parties, and alternative proposals are placed before Congress and legislatures. A
variety of groups then seek to provide voters with information on the costs and
benefits of alternatives so they can decide how to vote

The theory of public choice studies how decisions to allocate resources and
redistribute income are made through a nation’s political system. The political process
is, of course, influenced by factors other than economics, such as ideology. However,
from an economic point of view, the purpose of politics is to provide citizens with
useful goods and services. The theory of public choice examines how the political

4
process is used to determine the quantity of goods and services supplied by
governments.

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.

The Political Equilibrium. The equilibrium quantity and mix of government provided
goods and services depend on the distribution of tax shares per unit of those goods
and services, because citizens’ tax shares influence their voting choices.

The actual outcome depends, in part, on the particular public choice rule used to make
the decision. Proposals that cannot gain approval under unanimous consent might
very well be approved under majority rule. In general, the smaller the proportion of
the community required to approve any given issue, the greater the probability the
issue will be approved. The analysis in this chapter concentrates on choices made
through simple majority rule, under which a proposal is approved if it receives more
than half the votes cast in an election.

The median voter is the one whose most-preferred outcome is the median of the
most-preferred outcomes of all those voting. Or the voter whose set of preferences
divides the voting community into exactly two.

Example in a community of 5 people Ndlovo, Mary, Thandi, Johan and Ibrahim

Voter Preference for size of health budget below

Voter Amount (K million)

Ndlovo 50
Mary 200
Thandi 400
Johan 600
Ibrahim 800

Evaluate the majority decision of the budget

Assuming that there is no extreme preferences all five votes will prefer a K50million
budget instead of a zero budget. A movement from K50 million to 200 million will win
the support of every one expect Ndlovo. That is everyone except Ndlovo prefers a
budget bigger than K 50 million. A movement from K200 million to K400 million will be

5
approved by Thandi, Johan, Ibrahim while only two voters will support an increase
from K400 to K600 million.

It is clearly that three of the five options will enjoy majority support. all five voters will
support K50 million (or 100%), four voters (80 %) a budget of K200 million and Three
voter(60%) a budget of K400 million. But which is the optimal one? Which one will
make our voting population happiest or cause the least harm?
The answer is provided by the median voter theorem: The best option is that of
Thandi’s - Our median Voter.

Political transactions costs measure the value of time, effort, and other resources
expended to reach and enforce a collective agreement. Or the voter whose set of
preferences divides the voting community into exactly two.

Example in a community of 5 people Ndlovo, Mary, Thandi, Johan and Ibrahim

These are additional costs of the political process that must be considered in
evaluating the efficiency of government supply compared with market supply.

Decision making costs

Are costs involved in persuading voters to support a particular public issue? The
smaller the community of voters, the easier it will be to reach a majority or unanimous
decision and the lower will be the decision making costs.

External costs
Arise when a community takes a decision that goes against the interest of an individual
voter or group. The greater the number of people not supporting a public decision the
higher the external will be or the higher the unhappiness amongst the voting public.

Political institutions that require high percentages of agreement in the population

before increments in government activity can be undertaken are likely to result in a
minimal amount of political externalities. On the other hand, rules that require close
to unanimous agreement are likely to take a great deal of time and effort before an
agreement can be achieved. In choosing political institutions, citizens must weigh the
political externalities associated with these rules against the political transactions costs
of the rules.

Political externalities are losses in well-being that occur when voters do not obtain
their most-preferred outcomes, given their tax shares. Political externalities would be
zero if the tax shares of all voters of government goods and services were adjusted
6
until they equaled the marginal benefits received from government output. When
political externalities prevail, additional gains to voters are possible either through
changes in the output of government goods or changes in voters’ tax shares.