Whereas one can speak of the positive theory of public choice, based upon economic man assumptions, one must think of normative theories of public choice, for there are many views of what the goals of the state should be and how to achieve them. This potential multiplicity has been the focus of much criticism by positivists, who have argued for a “value-free” discipline. For the bulk of economics, it might be legitimate to focus on explanation and prediction, and leave to politics the explication of the goals of society. For the study of politics itself, in toto, to take this position is less legitimate; thus the interest in how the basic values of society are or can be expressed through the political process. The challenge that normative theory faces is to develop theorems about the expression and realization of values, based on generally accepted postulates, in the same way that positive theory has developed explanatory and predictive theorems from the postulates of rational egoistic behavior. Part V reviews some efforts to take up this challenge.

The Bergson-Samuelson social welfare function

The traditional means for representing the values of the community in economics is to use a social welfare function (SWF). The seminal paper on SWFs is by Bergson (1938), with the most significant further explication by Samuelson (1947, ch. 8).

We have already discussed several works that have assumed uncertainty over future position to derive a normative theory of social choice. Rawls's (1971) theory discussed in Chapter 25 uses uncertainty over future position to derive principles of justice to be included in a social contract; Harsanyi (1953, 1955, 1977) uses it to derive an additive SWF (see Chapter 23).

Buchanan and Tullock (1962) develop a theory of constitutional government in which the constitution is written in a setting resembling that depicted by Harsanyi and Rawls. Individuals are uncertain about their future positions and thus are led out of self-interest to select rules that weigh the positions of all other individuals (Buchanan and Tullock, 1962, pp. 77–80). Buchanan and Tullock's theory is at once positive and normative.

The postulate of methodological individualism underlies all public choice analysis. In trying to explain governmental actions, we begin by analyzing the behavior of the individuals who make up the government. In a democracy these are the voters, their elected representatives, and appointed bureaucrats. The postulate of methodological individualism has a normative analogue. The actions of government ought to correspond, in some fundamental way, to the preferences of the individuals whom these actions affect – the citizens of the state. This postulate of normative individualism underlies much of the normative analysis in public choice. It is quite understandable, therefore, that virtually all research in public choice has concentrated on the analysis of democratic governments, first because virtually all public choice scholars have lived in democratic countries and thus this form of political system has the most intrinsic interest for them, and second because they feel that all governmental systems ought to be organized as democracies.

In his book Exit, Voice, and Loyalty (1970), Albert Hirschman developed the useful distinction between processes in which individuals express their preferences via entry or exit decisions, and those in which some form of written, verbal, or voice communication is employed. An example of the first would be a market for a private good in which buyers indicate their attitudes toward the price-quality characteristics of a good by increasing or decreasing (entry or exit) their purchases. An example of the exercise of voice to influence a price-cost nexus would be a complaint or commendation of the product delivered to the manufacturer. A necessary condition for the effective use of exit is obviously that the potential users of this option be mobile: and full mobility of both buyers and sellers (free entry and exit) is an assumption underlying all demonstrations of market efficiency. In contrast, the literature focusing on voting processes, public choice and political science, has almost exclusively assumed (most often implicitly) that exit is not an option. The boundaries of the polity are predefined and inclusive; the citizenry is fixed.

In Chapter 4 we argued that the ubiquitous popularity of majority rule might be attributable to the speed with which committees can make decisions using it. This quickness defense was undermined considerably in Chapter 5 by the results on cycling. A committee caught in a voting cycle may not be able to reach a decision quickly, and the outcome at which it eventually does arrive may be arbitrarily determined by institutional details, or nonarbitrarily determined by a cunning agenda setter. Is this all one can say in majority rule's behalf? Does the case for the majority rule rest on the promise that quasi-omniscient party leaders can arrange stable trades to maximize the aggregate welfare of the legislature discussed in Section 5.13.3?

When asked to explain majority rule's popularity, students unfamiliar with the vast public choice literature on the topic usually mention justness, fairness, egalitarian, and similar normative attributes that they feel characterize majority rule.

Much attention in both lay and academic discourse has been given to the question of the proper size of government and the reasons for its growth. Public choice, the economic analysis of political institutions, would seem to be the natural tool for answering these questions, and it has frequently been employed in this task. A review of these efforts follows.

The facts

That government has grown, and grown dramatically in recent years, cannot be questioned. Total government expenditure in the United States in 1999 as a percentage of GNP was 28.3 percent, up from 23 percent in 1949 and 10 percent in 1929 (see Table 21.1). Moreover, this growth is confined neither to this century nor to the United States. Federal government expenditures as a percentage of national income in the United States were only 1.4 percent of national income in 1799. They rose to double that figure by the end of the nineteenth century, but were still only 3 percent of the GNP in 1929. Starting in the 1930s, however, federal expenditures took off, rising sevenfold as a percentage of the GNP over the next 70 years.

The government sector has also grown outside of the United States with this growth beginning at least as far back as the nineteenth century. Table 21.2 presents figures from Tanzi and Schuknecht (2000) for 16 countries in addition to the United States.

In Chapter 12 we discussed a model of political competition in which politicians provide policies or legislation to win votes, and citizens and interest groups provide votes. From the discussion up to this point, it seems reasonable to think that the legislation consists of either public goods with characteristics that appeal to given groups of voters or income transfers from one sector of the population to another. The latter might be a tax loophole benefiting a particular group coupled with a rise in the average tax rate to make up for the revenue lost through the loophole. Income can be transferred from one group to another by other, more subtle means, however.

The government can, for example, help create, increase, or protect a group's monopoly position. In so doing, the government increases the monopoly rents of the favored groups at the expense of the buyers of the groups' products or services. The monopoly rents that the government can help provide are a prize worth pursuing, and the pursuit of these rents has been given the name of rent seeking.

It is easy to envisage government arising out of pristine anarchy to fulfill a collective need of the community (say, protection from a predator) or to coordinate hunting or other food-gathering activity.

This book is a revision of Public Choice II. In revising the book, I have largely retained the structure of Public Choice II – most of the material contained in that volume reappears in this one. In some cases, this has resulted in very modest changes in a chapter and in quite substantial changes in others. Several new chapters have been written to cover topics that have cropped up or increased in importance since the previous edition was written. I have also attempted to retain the same level of difficulty as the previous version. Because the literature has become continuously more theoretical and mathematical, more mathematics appears in the new material than in the previous text, and the distinction between “easy” and “difficult” sections denoted by a * has become more arbitrary. Some may question my decision not to drop more material from the previous text, where little new work has appeared, to leave more space for new material. I have chosen not to go this route because I still think of the book as a survey of all of the major topics in public choice. That little new has appeared concerning Arrow impossibility theorems in recent years does not imply that the issues raised by this work are any less important, or that they should be omitted in a basic course in public choice – or so I believe.

In the rent-seeking model of politics discussed in Chapter 15, politicians buy and sell legislation to interest groups. The legislature is a marketplace at which rents are bought and sold. Problems of bureaucratic discretion are ignored. The legislature is in complete control. In stark contrast, in the first model of bureaucracy discussed in the previous chapter, the legislature is at the complete mercy of an all-powerful bureaucracy. Both types of models are, of course, polar cases derived to illustrate certain features of the political process. In this chapter we take a further look at the relationship between the legislature and the bureaucracies charged with implementing the policies initiated in the legislature. We also consider the separate role played by the chief executive in presidential systems like that of the United States, and the role of the judiciary. We begin with a model that completely reverses the power relationship of the Niskanen bureaucracy model.

The preceding chapters have focused upon the demand side of public choice. The citizen voter's preferences determine outcomes in the public sector. Government, like the market in a pure exchange economy, is viewed simply as an institution for aggregating or balancing individual demands for public policies. Those in government, the candidates and representatives, have been depicted as single-mindedly seeking to be elected. To do so they must please voters, so that those in government are merely pawns of those outside in a competitive political system. Only in the rent-seeking literature just reviewed does one begin to obtain a glimpse of another side of government. Politicians may not live by votes alone. They, too, may seek wealth and leisure. Their preferences may impinge on the outcomes of the public sector.

When we move … away from the private concerns of the family and the business office into those regions of national and international affairs that lack a direct and unmistakable link with those private concerns, individual volition, command of facts and method of inference soon cease to fulfill the requirements of the classical doctrine. What strikes me most of all and seems to me to be the core of the trouble is the fact that the sense of reality is so completely lost. Normally, the great political questions take their place in the psychic economy of the typical citizen with those leisure-hour interests that have not attained the rank of hobbies, and with the subjects of irresponsible conversation. These things seem so far off; they are not at all like a business proposition; dangers may not materialize at all and if they should they may not prove so very serious; one feels oneself to be moving in a fictitious world.

The reduced sense of reality accounts not only for a reduced sense of responsibility but also for the absence of effective volition. One has one's phrases, of course, and one's wishes and daydreams and grumbles; especially, one has one's likes and dislikes. But ordinarily they do not amount to what we call a will – the psychic counterpart of purposeful responsible action. In fact, for the private citizen musing over national affairs there is no scope for such a will and no task at which it could develop.