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.

The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.

The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders ambitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human passions, have, in turn, divided mankind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to cooperate for their common good. So strong is this propensity of mankind to fall into mutual animosities, that where no substantial occasion presents itself, the most frivolous and fanciful distinctions have been sufficient to kindle their unfriendly passions and excite their most violent conflicts. But the most common and durable source of factions has been the various and unequal distribution of property.

One of the most influential studies of the first stages of the social choice process has been Rawls's A Theory of Justice (1971). This book is at once a contribution to moral and to political philosophy. Rawls relies on work and results appearing in various branches of the social sciences, however, and applies his theory to several of the major issues of the day. For this reason, Rawls's work has been widely read and discussed and has had a substantial impact on the economics literature in general, and on collective choice in particular.

Rawls's theory differs from those that we have discussed up to now in its focus on the process or context in which decisions are made as much as, if not more than, on the outcomes of this process. The goal is to establish a set of just institutions in which collective decision making can take place.

This and the next four chapters explore the properties of various voting rules. These rules can be thought of as governing the polity itself, as when decisions are made in a town meeting or by referendum, or an assembly, or a committee of representatives of the citizenry. Following Black (1958), we shall often refer to “committee decisions” as being the outcomes of the voting process. It should be kept in mind, however, that the word “committee” is employed in this wider sense, and can imply a committee of the entire polity voting, as in a referendum. When a committee of representatives is implied, the results can be strictly related only to the preferences of the representatives themselves. The relationship between citizen and representative preferences is taken up later.

The unanimity rule

Since all can benefit from the provision of a public good, the obvious voting rule for providing it would seem to be unanimous consent. Wicksell (1896) was the first to link the potential for all to benefit from collective action to the unanimity rule.

In the fifty some years since the field of public choice was launched with the works of Black (1948a,b), Buchanan (1949), and Arrow(1951), it has grown tremendously in both breadth and depth. A comparison of the lengths of Public Choice published in 1979, Public Choice II published in 1989, and Public Choice III actually understates the growth of the field, since the current text leaves uncovered or only lightly covered a far greater fraction of the literature than did the one published in 1979.

The growth of the literature also reflects a growth in the number of people working in the field. This growth has been particularly conspicuous in political science. Three of the major figures in the field – Kenneth Arrow, James Buchanan, and Amartya Sen – have been awarded Nobel prizes. It would seem reasonable to conclude from these developments that the experiment of introducing rational actor models into the study of politics has been a success.