Public Choice Theory and Legal Institutions

This article asks what public choice can teach about legal institutions and their governing framework of public law. It begins with an overview and assessment of two important components of public choice: social choice theory (stemming from Arrow's Theorem) and interest group theory. It then considers the use of public choice models to explain the behaviour of legislatures, agencies, and courts. The core public choice insight is that institutional structures are responses to fundamental problems relating to collective action. However, the normative use of specific public choice models should be undertaken with caution. The models are likely to be most useful when they are informed by deep familiarity with specific institutional contexts; reforms are context-specific; and proposed changes are at the margin rather than involving major structural changes.

This chapter looks at the utilization of economic theories—public choice, transaction cost, and expectancy theories—in Public Administration literature in Europe and the US. The research shows that mathematical models in the field are predominantly associated with public choice and rational choice theories that have strong microeconomic assumptions connected to them. Although the discussion surrounding economic modelling in Europe has been more critical in tone compared to the US, it has paradoxically led to a wider use of economic modelling driven by model upgrading. The chapter argues that the lack of general theory building in the Public Administration discipline, both in Europe and the US, drives the perpetuation of economic modelling in the field.

“Making It Happen”: Deciphering Government Branding in Light of the Sydney Building Boom

Public choice theory plays a critical role in public law, particularly for legal scholarship and to some extent for doctrine. To be sure, it is not the only game in town, but it is an important one. We take broad views of both public choice and public law. Public choice theory, as the term is used in this volume, not only includes the classic application of economic principles to constitutional structure (as fi rst articulated by James Buchanan and Gordon Tullock) but also the overlapping categories of social choice, rational choice, and positive political theory. In short, public choice theory captures the application of basic economic principles – including rationality and self-interest of participating actors – to any public institution, whether formally political or not. Public law here is also used broadly. For our purposes, it encompasses most formal and informal interactions with governmental institutions, such as those between legislators, or between lobbyists and a federal agency. These interactions may be entirely among governmental actors or may include connections between the state and private individuals. This volume is part of a new series, Research Handbooks in Law and Economics, which has been developed under the direction of Judge Richard Posner and Professor Francesco Parisi. Each volume in the series aims to serve as a reference, providing helpful introductions to important topics, and as a provocateur, suggesting weaknesses and important areas for further exploration. This volume also emphasizes interdisciplinary and empirical approaches to public choice and public law, drawing from a range of social sciences and legal subjects. It is broken into four major segments: foundations, constitutional law and democracy, administrative design and action, and examples of specifi c statutory schemes. The contents are described in more detail below. This introductory essay has several goals and audiences. To situate the novice, it starts by providing some cursory background on public choice theory, which the fi rst part of the book covers in a more deliberate and stimulating manner. For the more sophisticated reader, it suggests that the fi eld has shifted considerably in its aims and even its methods, comparing its origins to its current manifestations. For scholars engaged in this or related research, it then off ers some lessons to consider as the fi eld moves forward. Finally, for all readers, it summarizes the chapters contained in the volume. One cautionary note should be made at the start. No component of the introduction or the book itself is meant to be all encompassing or conclusive. Rather, each hopefully stands as a helpful starting point to a much richer and more complex set of ideas in the extensive literature on public law and public choice.

Comment on “Error and Regulatory Risk in Financial Institution Regulation”

Economists' continuing criticisms of protectionism make a valuable contribution to the general interest element of the forces which operate to keep propensities to protect somewhat in check. McKenzie rightly warns, however, that proposals by economists for giving protection in more efficient forms run the danger of increasing the total supply of protection. Thus, we agree that serious consideration should be given to the political economy responses which may be induced before one advocates ways of doing more efficiently what one believes should not be done in the first place. It does not follow, however, that all such policies will have net negative unanticipated consequences. In the case of tariffs versus quotas, we do not believe that we have yet sufficient knowledge of all of the relevant political economy considerations to predict about the full effects of legislation which allowed trade protection to only take the form of tariffs. We are doubtful, however, that such a measure would increase the total quantity of protection through the channels outlined by McKenzie. We believe that the same type of basic public choice analysis of the individual incentives to lobby which suggests that consumer-taxpayers will not force the political process to operate so as to maximize aggregate economic efficiency with respect to the level of protection also suggests that the net lobbying for quotas is likely to be higher on average than the net lobbying for tariffs. Political effectiveness and ability to overcome free riding on the part of tariff revenue seekers is likely to be low at the margin. Furthermore, issues of visibility and institutional structure are likely to lessen the ability of anti-protection forces to lobby against quotas. Placed within a broader framework, public choice and rent-seeking theory is consistent with the empirical evidence that where quotas are used, protection is high.

The subject of this article is the interpretation of the definition of heterodox approach to public-private partnerships (PPPs) in public choice theory and in the theory of social choice. This is the part of the author’s broader research, aimed at identifying the potential convergence of selected elements from public finance theories and Islamic finance theories. PPP agreement falls into the main assumptions of both the theory of public choice and the theory of social choice. This may, therefore, provide opportunities for the transfer of selected public finances and Islamic finance to PPP investments, with the participation of international investors from different legal, economic and religious backgrounds. By creating a heterodox approach to PPPs, it is possible to achieve consistency between the main objectives of private-sector conventional investors: maximizing profitability, and the goals of Islamic investors: maximizing social well-being and profitability and the objectives of public entities: public service delivery. The article is theoretical, the basic research method was the literature studies.

Public choice theory should be taken seriously—but not too seriously. In this thought-provoking book, Jerry Mashaw stakes out a middle ground between those who champion public choice theory (the application of the conventional methodology of economics to political science matters, also known as rational choice theory) and those who disparage it. He argues that in many cases public choice theory's reach has exceeded its grasp. In others, public choice insights have not been pursued far enough by those who are concerned with the operation and improvement of legal institutions. While Mashaw addresses perennial questions of constitutional law, legislative interpretation, administrative law, and the design of public institutions, he arrives at innovative conclusions. Countering the positions of key public choice theorists, Mashaw finds public choice approaches virtually useless as an aid to the interpretation of statutes, and he finds public choice arguments against delegating political decisions to administrators incoherent. But, using the tools of public choice analysts, he reverses the lawyers' conventional wisdom by arguing that substantive rationality review is not only legitimate but a lesser invasion of legislative prerogatives than much judicial interpretation of statutes. And, criticizing three decades of "law reform," Mashaw contends that pre-enforcement judicial review of agency rules has seriously undermined both governmental capacity and the rule of law.

The problem ofjustifying democracy arises when a society sees the need for cooperative, collective action. Collective action may be needed to solve coordination problems, public goods problems, Prisoner's Dilemmas, and other structural problems of human interaction or perhaps to realize common ideals of justice in concrete political institutions. Once the need for collective action is established, one must ask how the goals of a cooperative endeavor are to be secured. Cooperation requires that individuals, at least over a specified range of activity, pursue a joint strategy. To assure voluntary compliance in a joint venture, cooperation must be to each person's advantage. However, each person may have an incentive to induce others to cooperate and to defect from the joint strategy in the hope of enjoying the fruits of cooperation without incurring the opportunity costs of compliance. This is the essence of the Prisoner's Dilemma, and considerations of this sort suggest that if collective action is to succeed, policies or strategies formed collectively must be coercively enforceable. Coercion, however, requires justification. Because solving the problem of rational noncompliance requires that collective decisions be coercively enforceable, the rules by which collective decisions are reached require justification. Douglas Rae neatly puts the problem of justification that emerges when political solutions are coercively enforceable as follows: "Once a political community has decided which of its members are to participate directly in the making of collective policy, an important question remains: 'How many of them must agree before a policy is imposed on the community?"" This is essentially the question to which the principle of democratic rule provides an answer: by what process are collective decisions to be made? Answering Rae's question requires a normative framework. We could say that a procedure for making collective decisions is justified if and

Public choice theory suggests that if public officials monopolize service delivery, then the result is oversupply and inefficiency (Blais and Dion, 1992; Jackson, 1982; McMaster and Sawkins, 1996; Mueller, 1989). By contrast, if services are contracted out, then the pressures of a competitive market lead to improved performance. The advocates of service contracting in local government have been influenced strongly by public choice arguments on bureaucracy that were developed in the 1960s (Downs, 1967; Niskanen, 1968, 1971; Tullock, 1965). For example, Savas (1974, 474) argues that most city agencies are monopolies, their staffs are automatically in a position to exercise that monopoly power for their own parochial advantage -- and efficiency is rarely seen as an advantage. In short, we have unwittingly built a system in which the public is at the mercy of its servants (see also Bennett and Johnson, 1979). The of public services by external agencies has grown substantially since the early 1970s. As Miranda and Andersen (1994, 28) note, although the use of contracting varies across service areas, contracts have been used for every service local governments provide. The expansion of contracting out can be viewed as a huge natural experiment that effectively tests the validity of public choice propositions concerning the behavior of public managers who possess monopoly powers. Indeed, seldom has the major practical recommendation of an abstract model of bureaucracy been so widely implemented. Public choice theory is perhaps uniquely blessed (or cursed) by policy developments that its creators may have desired, but could not have foreseen. Reviews of the evidence on local service contracting have generally concluded that it does produce the results that public choice theory predicts. For example, Stein (1990, 498) claims that research on contracting for individual goods and services has consistently found this mode of service arrangement to be more efficient than direct service provision and production (emphasis added). Similarly, Kiewiet (1991, 66) concludes that virtually every study that has ever compared the operations of public bureaus with those of private firms providing identical services has found data to support the inefficiency hypothesis (emphasis added). Finally, Bennett and Johnson (1980, 392-93) assert that exception, the empirical findings indicate that the same level of output could be provided at substantially lower costs if output were produced by the private sector rather than the public sector.... The private sector of public services offers an excellent opportunity for tax reductions without sacrifice of services; the best of all possible worlds, at least in this case, can be achieved (emphasis added; for similar arguments see Ferris, 1986; McGuire, Ohsfeldt, and Van Cott, 1987; Miranda, 1994a; Savas, 1979). Such claims on the beneficial effects of local service contracts have also been made in other countries, for example the U.K. (Boyne, 1998a). This article aims to reappraise the empirical evidence on the effects of service contracting in U.S. local government and to evaluate the implications of this evidence for public choice models of public administration. The first part of the article identifies three specific public choice hypotheses on the impact of service contracting on spending and efficiency. The second part of the article evaluates whether these hypotheses are supported by the empirical evidence on contracting with private organizations and other units of government. It is important to note at the outset that this article evaluates evidence that compares local government agencies and external contractors as producers of public services. The aim is not to compare the relative merits of wholly public and completely private provision of local services (studies that contain evidence on this issue include Hirsch, 1965 and Pier, Vernon, and Wicks, 1974, on refuse collection; Becker and Sloan, 1985, on hospitals; Nelson, 1990, Primeaux, 1977, and Yonker, 1975, on electricity; and Bruggink, 1982 and Teeples and Glyer, 1987, on water supply). …

To write about the expected development of Public Choice during the next twenty years is, of course, impossible. For, in order to predict the development of the field, it would be necessary to know already today the results of future research, but then the latter would be unnecessary. Thus I shall turn to a more modest and rather subjective endeavor, namely, to sketch some items which might prove fruitful for future research by filling gaps, by integrating already existing insights and by extending the domain of Public Choice. I will especially take up in the next section the relationship of Public Choice Theory with “Constitutional Economics”, “Law and Economics”, “Institutional Economics”, and “Social Choice Theory”. Following this, the relationship of Public Choice with the analysis of the International System will be discussed (Section 3). Section 4 will take up Public Choice, Ideology and Information and nondemocratic regimes. Finally, Section 5 offers some remarks on the evolution, transformation and reform of political-economic regimes.

An important element of New Right economics is public choice theory (also known as the ‘Virginia School’, or rational choice theory, or the economics of politics; see Dunleavy, 1986), which has been especially influential amongst New Right intellectuals. However, the term ‘public choice’ or the ‘economics of politics’ has not gained the wide usage of other New Right terms like monetarism and privatisation. This reflects the complexity of rational choice analysis. But there is significant overlap between public choice theory and other aspects of liberalism. Also, the influential New Right Institute of Economic Affairs has devoted part of its publications to propagating public choice arguments in a highly readable form. This has increased their accessibility for liberal politicians. This chapter begins with a discussion of the meaning of public choice analysis and then considers specific contributions. These include rational choice arguments about the behaviour of voters, politicians and bureaucrats in liberal democracies, and issues such as the prisoners’ dilemma and the problem of collective action. Technical explanation is eschewed in favour of qualitative exposition of the core assumptions. The chapter does not provide a comprehensive account of public choice theory (for reviews see Laver, 1981; Mueller, 1979; Barry and Hardin, 1983; Bonner, 1986). Rather this chapter illustrates the nature of public choice analysis and identifies the contributions most influential amongst New Right advocates.

The paper explores the Public Administration roots and facets of the Bloomington School of Public Choice and Institutional Theory and in doing that, it revisits the problem of the applied dimension of Public Choice. The paper investigates and documents the nature, significance and reception of Vincent and Elinor Ostrom’s work, approaching it as a pioneering attempt to promote a double agenda: on the one hand, to advance Public Choice theory as a paradigm shift in Public Administration, and on the other, to advance Public Administration as the preeminent applied domain of Public Choice theory.

Public choice theory is listed under microeconomics in the JEL code. It is considered largely an issue of microeconomics, as well as the microeconomists who straddle the boundary between economics and political science. Starting from the 1970s, however, there has been an increasing number of macroeconomists researching on topics related to public choice-inspired macroeconomic models, and a few public choice scholars have discussed macroeconomic issues under the public choice framework. The difference is that the first group has attempted to separate themselves from the very label of “public choice” itself, adopting all manners of alternative labels (such as political macroeconomics, political economics, new political economy, among others). To these I use the term “New Political Macroeconomics” as an umbrella label for this tradition. This has created conflicts with other public choice traditions, especially the Virginia tradition. They claim that this attempt to “separate” from public choice is harmful to the entire field of economic analysis of politics. This article is an attempt to understand the formation of new political macroeconomics, how it became its own tradition of public choice and why it would want to separate from the label of “public choice theory.” The reasons, as this article shall detail, are primarily the political macroeconomists’ adoption of the macroeconomics paradigm, and the attempt to distance themselves from the ideological association with libertarianism present in some public choice traditions. This discussion indicates how differences in language and values might impact how economists see their subject of study: even if public choice theorists and political macroeconomists study similar topics, they have different understandings of them.

BASIC TO MODELS of electoral competition is the assumption that candidates adopt positions on policy issues as a means of attracting votes. However, candidates are also judged on the basis of human qualities and other attributes not related to the policies they espouse in a campaign. The spatial theory of electoral competition has, in the past, treated such attributes as part of the policy space over which candidates compete. However, certain difficulties attend such an interpretation. For example, it is difficult to view a candidate's personality as something which can be altered to please the voters. The mistakes that an incumbent has committed in office are not things he can erase to compete more effectively for votes. A candidate's religion cannot be abandoned because it is a political liability. In short, there are nonspatial attributes that affect voter evaluations of each candidate, which are beyond that candidate's immediate control. It is the purpose of this paper to incorporate these nonspatial attributes into the spatial model of electoral competition to show how the policy outcome of two candidate electoral competition is af-