chapter 29 econ -...

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www.swcollege.com/bef/arnold/instructor/arnold6e/im30.doc CHAPTER 31 Public Choice: Economic Theory Applied to Politics Chapter 30 discussed two major sources of market failure—situations in which the market fails to produce the optimal quantity of output. To a large degree, this chapter is about government failure situations in which government enacts policies that produce inefficient and/or inequitable results as a consequence of the rational behavior of the participants in the political process. Chapter 31 develops the theory of public choice, using economic rationale to study the “market” for political outcomes—both elections and policies—and the participants in that market: politicians, voters, special-interest groups, and bureaucrats. Chapter 31 is a great companion to the preceding chapter, in that it can be used to look at the decisions to tax, subsidize, and regulate (or not to) externalities , as well as to produce government-provided and public goods . CHAPTER OBJECTIVES Upon completing this chapter, your students should be able to: 1. Describe the median voter model and make predictions based on it. 2. Explain how a simple majority vote can produce inefficient outcomes. 3. Discuss the costs and benefits of voting. 4. Explain why many members of the general public are uninformed on political issues. 5. Discuss how special-interest groups influence legislation. 6. Discuss the details of rent seeking. 7. Discuss both the facts and effects of bureaucracy. KEY TERMS public choice • special-interest groups median voter model • logrolling rational ignorance • government bureaucrat 41
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42 Chapter 31 CHAPTER OUTLINE I.PUBLIC CHOICE THEORY Public choice is the branch of economics that deals with the application of economic principles and tools to public-sector decision making. In so doing, public choice theory makes a basic assumption that people are people and that the difference between “economic” behavior and “political” behavior is one of institutions, and not of fundamentally different human characteristics. The same types of people who are employers, employees, and consumers in the market sector are the politicians, bureaucrats, special-interest group members, and voters in the public sector. According to public choice theory, the differences between the behavior of people in the market sector and people in the public sector arise from different institutional arrangements in the two sectors, not from different motives or character traits. II.THE POLITICAL MARKET A.Moving Toward the Middle: The Median Voter Model —During most U.S. political elections, voters complain that the candidates are “too much alike”— they have similar backgrounds, and they campaign on more or less the same slate of issues. Why does this happen? Exhibit 1 illustrates that political office seekers are faced with a distribution of voters that is largely made up of people “in the middle”—or, to use the political term, moderates. Given this, a rational office
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chapter 29 econ -...

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