State - Public Choice, Hay.docx

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Political Science
Political Science 1020E
Bruce Morrison

PUBLIC CHOICE – ANDREW HINDMORE  Public choice theorists do no have a particularly well thought-out account of what the state is. Practitioners constantly slip between talking about the state, the government and the public sector without ever indicating whether these are meant to refer to different entities. What they do however possess is a distinctive and distinctively hostile account of what the state does and why it does it  Public choice theorists regard the state as a source of inefficiency – as the science of political failure  The rapidly accumulating developments in the theory of public choice, have all been influential in modifying the way that moderm man views government and political all levels...limiting the expansion of government power  For whilst the heyday of public choice theory may now have passes, this still remains a intellectually and politically influential approach whose analysis and prescriptions deserve to be taken seriously whether or not they are thought valid  I define public choice as involving the application of the methods of economics to the study of politics, and in particular as requiring the assumption of self interested behavior  Choice theory can actually albeit unexpectedly, be used to reach the same conclusion about people’s motives and how an alternative public choice research agenda might be extracted from this insight  It is a method because it requires practitioners to study politics in a particular way using particular assumptions and techniques. It is a theory because the application of that method has resulted in the development of an intellectually coherent set of arguments about the set  Satisfaction of preferences is a source of personal welfare or utility  The real sticking point for public choice’s critics is however the assumption of self interest. In itself there is nothing in the assumption of utility maximization which implies that actors must be self interested MARKET AND STATE FAILURE  Adam Smith’s Wealth of Nations argues that the propensity to truck, barter and exchange are inherent features in human nature and the ultimate source of economic prosperity. When trading with each other, individuals will rigorously guard their self-interest. In doing so they will however be led, as if by an invisible hand to promote the common good  The wealth of nations was a landmark publication credited with destroying the intellectual foundations of mercantilism, the economic theory which held that a state’s prosperity requires the maintenance of a positive trade balance and so the erection of import barriers and the state led encouragement of exports  Perfect and that markets frequently fail  MONOPOLY - Many industries are very obviously dominated by, at most, a handful of firms who individually have a great deal of influence over prices. Firms with such monopoly power will be able to increase their profits by raising prices and restricting output. This will however reduce consumer welfare as those buying their products have to pay an inflated price  EXTERNALITIES - The costs of maintain a factory fall not only on the owner who must pay for labor and raw materials but on neighbouring residents who must endure the resulting pollution and noise. Because producers and consumers have no reason to take account of these effects, too much will be produced of goods which generate negative externalities and too little of those goods which generate positive externalities  PUBLIC GOODS - For competition to be perfect, goods must bed private in the sense of being both excludable and rival - A good is rivalrous if its consumption by one person reduces the amount available to be consumed by others - Where consumers have preferences for public goods the market will fail because individuals will not contribute toward to the cost of goods they cannot be excluded from using - When competition is imperfect there would seem to be an obvious prima facie case for state intervention to either prevent or correct market failures - Public choice theorists argued that whilst welfare economists have shown how and why the market might sometimes fail they simply asserted rather than demonstrated the ability and willingness of the state to correct those failures - Public choice theorists maintained, the state would fail for many of the same reasons as the market - Welfare economists apparently assumed that self interest had its limits - They assumed that those working for the state would act as benevolent guardians of the public interest - The assumption of self interest means that proponents of state intervention cannot simply take it for granted that the state will act in the required, welfare maximizing, way. Just as self interest can lead to market failure so too can it lead to state failure FORMS OF STATE FAILURE  State interventions in the economy, create both economic winners and losers  The state intervenes to create special economic privileges, or rents, benefiting its political supporters and campaign contributors and harming its political opponents
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