Public Choice In a Representative Democracy

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

The bureaucracy is a part of the supply side of the political market.

The term bureaucracy has a negative connotation – the static and conformist bureaucrat is seen as the antipode to the dynamic entrepreneur. We use the term without this connotation, as we want to explain the bureaus’ performance with rational behaviour and do not want to judge them morally.

a) Budget maximization

Bureaus are budget maximisers, as income is fixed.

Bureaucrats pursue power; a basic foundation of power is superior information PAP.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

The output of bureaus has a non-market nature. The buyer cannot observe the quality, as market prices do not exist.

In addition, there is a bilateral monopoly between bureau and sponsor (government).

Output is too large and probably not efficiently produced.

Instead of the optimal output of the benefit maximising sponsor satisfying B’ (Q) = C’ (Q), the bureau’s output is too large satisfying B (Q) = C (Q).

At this point social surplus is zero (E = F).

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

The basic model: budget maximising bureaucrats

(4)

(5)

(6)

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Figure 4.10: The oversupply of a bureau‘s output

B‘, C‘

C‘

E

F

B‘

B‘s

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Extensions of the model: alternative institutional assumptions.

(7)

(9)

(10)

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Figure 4.11: Options for a price setting bureau

P

η>1

η=1

P1

η<1

C‘L

Q

Q1

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Alternative behavioural assumptions

So far, we assumed excessive but efficient supply of the public good. It may also be possible that the bureaucrats have additional objectives, e.g. the increase of personnel, the size of the office space etc.

c) Slack maximization

X-inefficiency or bureaucratic slack slack-maximising bureaus

It is difficult to measure efficiency of bureaus data envelopment analysis to calculate the efficiency frontier and compare it with the actual outcome.

In Figure 4.15, the distance between BE’ (the efficiency frontier) and BS’ the actual outcome would be the result.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

© Freytag 2013

Y B

E‘

S‘

Z‘

Public Choice

Figure 4.12: The output choice of a slack-maximizing bureau

E

0

Umax

S

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Empirical evidence:

Whether or not bureaucrats are able to maximise their own objectives, depends among others on the discretionary leeway they have agenda setter or not?

d) The power of the agenda setter

If they are agenda setter, they may force the sponsor to approve a much higher than optimal budget.

Oregon school budget referendum process:

By offering two alternatives below and above the maximal utility of the median voter, the school bureaucracy managed to receive a higher budget than in the median voter’s optimal position (Figure 4.16).