Grad Public Choice

• The analysis assumes a benevolent social planner by design (normative welfare economics)
• Political actors are genuinely constrained by strong norms, courts, or transparency (minimal agency problem)
• The question is about market failure, not government failure

Assumptions

IRON LAW: Public officials are NOT benevolent social planners — they
respond to incentives just like market participants. Policy outcomes
reflect the preferences of those with political power, not the
preferences of society at large.

• Politicians maximize votes (or probability of re-election)
• Bureaucrats maximize budget size or discretionary authority (Niskanen model)
• Voters are rationally ignorant — the cost of becoming informed exceeds the expected benefit of a single vote
• Interest groups form when concentrated benefits exceed organization costs (Olson's logic of collective action)
• Constitutional rules are the meta-game that shapes all subsequent political games

Methodology

Step 1 — Identify the Political Market Map the actors: voters, politicians, bureaucrats, interest groups. Specify what each actor maximizes and the constraints they face (electoral cycles, budget rules, information costs).

Step 2 — Apply the Relevant Model Choose from: (a) Median Voter Theorem — in single-dimensional, single-peaked preference space, the median voter's preferred policy wins under majority rule; (b) Rent-seeking model — agents spend real resources to capture a transfer, dissipating up to the full value of the rent; (c) Logrolling / vote trading — minorities trade votes across issues to pass legislation that fails majority support on each issue individually; (d) Bureaucracy model — budget-maximizing bureaus produce beyond efficient output.

Step 3 — Estimate Government Failure Costs Quantify: (a) Tullock rectangle — resources spent on rent-seeking; (b) Allocative distortion from policies that reflect political rather than economic efficiency; (c) X-inefficiency within government agencies lacking competitive pressure. Compare against the market failure the policy aims to correct.

Step 4 — Propose Institutional Remedies Recommend constitutional or institutional design changes: supermajority requirements, sunset clauses, independent agencies, fiscal rules, transparency mandates, or decentralization (Tiebout competition). Evaluate trade-offs between flexibility and constraint.

Output Format

## Public Choice Analysis: [Policy / Institution]

### Political Actors
| Actor           | Objective             | Key Constraint         |
|----------------|-----------------------|------------------------|
| Voters          |                       |                        |
| Politicians     |                       |                        |
| Bureaucrats     |                       |                        |
| Interest groups |                       |                        |

### Model Applied
- **Framework**: Median voter / Rent-seeking / Logrolling / Bureaucracy
- **Prediction**: [what the model predicts will happen]
- **Observed outcome**: [what actually happens — consistent?]

### Government Failure Costs
| Cost Category          | Estimate / Description |
|-----------------------|----------------------|
| Rent-seeking expenditure |                    |
| Allocative distortion    |                    |
| X-inefficiency           |                    |

### Market Failure vs. Government Failure
- **Market failure being addressed**: [externality / public good / monopoly]
- **Government failure introduced**: [rent-seeking / capture / inefficiency]
- **Net assessment**: [intervention improves welfare? or worsens it?]

### Institutional Recommendations
[Specific reforms with rationale]

Gotchas

• Rational ignorance does not mean voters are stupid — it means the marginal cost of information exceeds the marginal benefit given one vote's influence
• The median voter theorem requires single-peaked preferences and a single policy dimension — with multiple dimensions, cycling (Arrow's impossibility) can occur
• Rent-seeking dissipation can exceed 100% of the rent when contestants are risk-loving or misinformed about competition
• Public choice does not claim all government action is bad — it claims the incentive structure must be analyzed, not assumed benevolent
• Buchanan distinguished between "politics without romance" (positive analysis) and constitutional political economy (normative design of rules)
• Regulatory capture (Stigler) is a specific form of rent-seeking where the regulated industry controls the regulator — independence alone is insufficient

References

• Buchanan, J. & Tullock, G. (1962). The Calculus of Consent. University of Michigan Press.
• Tullock, G. (1967). "The Welfare Costs of Tariffs, Monopolies, and Theft." Western Economic Journal.
• Olson, M. (1965). The Logic of Collective Action. Harvard University Press.
• Mueller, D. (2003). Public Choice III. Cambridge University Press.