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Public choice theory

Background

A notable precursor to modern public choice theory was Knut Wicksell (1896) who treated government as political exchange quid pro quo. Still, subsequent work was described as treating government as though attempting "to maximize some sort of welfare function" and as apart from considerations driving economic agents, such as businessmen. This contrasted with public choice theory in modeling perspective of government bureaucrats and politicians who compose them on the assumption that they acted in a self-interested way for the purpose of enhancing their own power and influence, for example based on a budget-maximizing model or game-theoretic framework.

There are also Austrian variants of public choice theory (suggested by von Mises, Hayek, Kirzner, Lopez, and Boettke) in which it is assumed that bureaucrats and politicians may be benevolent but have access to limited information. The assumption that such benevolent political agents possess limited information for making decisions often results in conclusions similar to those generated separately by means of the rational self-interest assumptions. Randall Holcombe and Richard E. Wagner have also developed the notion of "Political Entrepreneurship".

Development

Work on public choice theory began with Duncan Black, who in 1948 identified the underlying concepts of what would become median voter theory. He also wrote The Theory of Committees and Elections in 1958. Gordon Tullock refers to him as the "father of public choice theory".

James M. Buchanan and Gordon Tullock coauthored The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962), considered one of the landmarks in public choice theory. In particular (1962, p. v), the book is about the political organization of a free society. But its method, conceptual apparatus, and analytics "are derived, essentially, from the discipline that has as its subject the economic organization of such a society." The book focuses on positive-economic analysis as to the development of constitutional democracy but in an ethical context of consent. The consent takes the form of a compensation principle like Pareto efficiency for making a policy change and unanimity at least no opposition as a point of departure for social choice.

Kenneth Arrow's Social Choice and Individual Values (1951) influenced formulation of the theory. Among other important works are Anthony Downs's An Economic Theory of Democracy (1957) and Mancur Olson's The Logic of Collective Action (1965).

During the same decade, the probabilistic voting theory started to replace the median voter theory, since it clearly showed how it was able to find Nash Equilibria also in multidimensional space. The theory was later completely formalized by Peter Coughlin.

Notes

1. Mueller, Dennis C. (1976). "Public Choice: A Survey," Journal of Economic Literature, 14(2), p. 396. [pp. 395-433.
2. ^ Cite error: The named reference Tullock2008 was invoked but never defined (see the help page).
3. Mancur Olson, Jr., 1965, 2nd ed., 1971. The Logic of Collective Action: Public Goods and the Theory of Groups, Harvard University Press, Description, Table of Contents, and preview.
4. Coughlin, Peter (1991). Probabilistic Voting Theory.