Public Choice In a Representative Democracy

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

4.Public Choice in a Representative Democracy

I.Federalism

a)The logic

b)Why is the size of the government too large?

c)Why is the size of the government too

large and to small?

II.Two-Party competition and deterministic voting

a)Outcomes in the Hotelling-Downs-Model

b)Two-Party competition in a constrained policy space

c)Two-party competition (probabilistic voting)

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

III.Multi-Party-Competition

a)Selecting a representative body

b)Proportional representation in practice

c)Electoral rules and the number of parties

d)Goals of parties

e)Cabinet stability

f)Strategic voting

IV. The paradox of voting

a)Rational voter hypothesis

b)Expressive voter hypothesis

c)Ethical voter hypothesis

d)Voting as duty V. Rent-Seeking

a)The basic model

b)Rent-seeking through regulation

c)Rent-seeking through tariffs and quotas

d)The logic of collective action

e)The costs of protection

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Introduction

Whereas in a direct democracy, problems of lobbying and administration do not play a major role, in a representative democracy they do.

Principal-agent-problem

In a representative democracy, public choice analysis is even more adequate, as a political market can clearly be observed. On this market, political entrepreneurs tryry to sell their product, and rent-seeking groups expresss their demand.

There are different levels of decision-making. Thiss constitutes more difficult problems.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

I. Federalism

Federalism can be interpreted as an application of the theory of clubs.

The assignment problem under federalism is not about the horizontal assignment of responsibility for e.g. monetary policy, fiscal policy, industrial relations etc (see below). Rather it is about the assignment of policy responsibility to different levels of decision-making.

Following the Tinbergen-principle, each policy goalal needs an individual instrument.

Neoclassical assignment adds the requirement to have an individual agency for each objective.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

The assignment problem

a) The logic

A simple example may illustrate the point.

Consider a community of nine, divided into subcommunities of three, A, B and C. Two public goods, GF as the federal and GL as the local public good, are to be provided.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

First assume the both, GF as the federal and GL as the local public good, are provided centrally under majority rule.

GF, GL

Under Plott’s theorem, B2 is the median and the amount of both GF and GL will be provided.

In the case of the federal public good, all have to consume the chosen level.

In the case of the local public good, the groups A, B and C would prefer a different outcome. They would chose A2, B2 and C2 respectively.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Group A would consume less of the local public good GL, whereas group C would like to have more of it.

The superior solution would, therefore, be to assign the responsibility for GF to the larger community and for GL to the local communities.

Federalism has two salient properties (compare: FOCJ):

Obviously, federalism has its limits. There are least classes of public goods provided on the same political level, and the number of levels must not be too high; the reason being

transaction cost.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

Geographic representation vs. at large representation

Geographic representation implies that each local community sends one (or more) representatives to an assembly of the higher level of government.

At large representation implies that all voters select their candidates for the higher governmental level from one single list.

There is not necessarily a consideration of the regional of local minorities, depending on the individual voting behaviour.

Andreas Freytag

1.Introduction

2.Origins of the State

3.Public Choice in a Direct

Democracy

4.Public Choice in a Representative Democracy

5.Application of Political

Economy Models

6.Normative Public

Choice

Public Choice

b) Why is the size of government too large under federalism?

Log-rolling!

Under local responsibility, group A will consume less the local public good GL than groups B and C.

If B and C form a coalition to provide GL within the large community, they can reduce their tax per capita at the expense of A.

This scenario happens under geographic representation.

It may be different under at-large representation. Log-rolling may hit back in the future universalism!