Public choice
Based on Wikipedia: Public choice
Why Politicians Do What They Do
Here's a puzzle that has frustrated citizens for centuries: Why do democratic governments so often produce policies that most people oppose? Why do subsidies flow to well-connected industries while roads crumble? Why does the tax code contain thousands of carve-outs for narrow interests while ordinary taxpayers struggle with its complexity?
The conventional answer involves corruption or incompetence. But there's a more unsettling explanation. Everyone involved—the politicians, the lobbyists, the bureaucrats, even the voters—might be acting entirely rationally. The problem isn't bad actors. It's the system itself.
This is the core insight of public choice theory, a field that applies the tools of economics to politics. Rather than assuming that government officials are selfless servants of the public good, public choice theorists ask a simple question: What if politicians and bureaucrats are just as self-interested as everyone else?
The Romance of Government
For most of the twentieth century, economists operated with a peculiar double standard. When analyzing private markets, they assumed that businesses and consumers acted in their own self-interest. Firms maximized profits. Consumers maximized utility. Self-interest was the engine that, channeled by competition, produced efficient outcomes.
But when these same economists turned to government, they switched assumptions. Suddenly, officials became benevolent. Regulators sought the public good. Politicians aimed to maximize social welfare. Government was treated as a kind of corrective force, stepping in to fix market failures with wise and disinterested intervention.
Public choice theorists call this assumption "the romance of government." And they reject it entirely.
Why would someone who acts selfishly on Monday as a business executive suddenly become altruistic on Tuesday when they're appointed to a regulatory agency? The public choice answer: they wouldn't. The same person, with the same motivations, will pursue their own interests in both settings. What changes is the institutional context—the rules, incentives, and constraints they face.
The Swedish Economist Who Started It All
The intellectual roots of public choice stretch back to the late 1800s, when a Swedish economist named Knut Wicksell proposed a radical idea. Government, he suggested, should be understood as a form of exchange—a quid pro quo between citizens and the state.
Think about it this way. When you buy groceries, you exchange money for food. Both parties benefit, or they wouldn't make the trade. Wicksell argued that taxation and government spending should work similarly. Citizens pay taxes (the cost) and receive public services (the benefit). The exchange is legitimate only if both sides gain from the arrangement.
This seems obvious. But it was revolutionary because it treated government as part of the economy, subject to the same analytical tools economists use for markets. It opened the door to asking uncomfortable questions about whether the political exchange actually benefits both parties—or whether some are exploiting others.
The Founders of Modern Public Choice
Public choice theory as a distinct field emerged in the 1950s and 1960s through the work of several pioneering thinkers.
Duncan Black, sometimes called the founding father of public choice, wrote a series of papers culminating in The Theory of Committees and Elections in 1958. Black developed what became known as median voter theory—the idea that in many voting situations, the preferences of the voter in the middle of the political spectrum will prevail. If you want to understand democratic outcomes, find the median voter.
Kenneth Arrow, in his 1951 book Social Choice and Individual Values, proved something disturbing. He demonstrated mathematically that no voting system can perfectly translate individual preferences into group decisions. Every method of aggregating votes has fundamental flaws. This became known as Arrow's Impossibility Theorem, and it earned him a Nobel Prize.
Anthony Downs applied economic reasoning directly to electoral competition in An Economic Theory of Democracy (1957). Politicians, Downs argued, don't propose policies because they believe in them. They propose policies to win votes. Just as businesses offer products that consumers want to buy, politicians offer policies that voters want to support. This doesn't mean politicians are cynical—it means they face the same competitive pressures as firms in a marketplace.
Mancur Olson tackled a different puzzle in The Logic of Collective Action (1965): Why do small, concentrated interest groups so often defeat large, diffuse majorities?
The Logic of Concentrated Benefits and Diffuse Costs
Olson's insight was simple but profound. Consider a proposed tariff on imported steel. American steel companies would gain enormously—perhaps hundreds of millions of dollars in additional profits. These benefits are concentrated among a small number of firms.
Meanwhile, the costs are spread across millions of consumers who pay slightly higher prices for cars, appliances, and construction materials. Each individual consumer loses perhaps a few dollars per year.
Now ask yourself: Who has a stronger incentive to organize politically?
The steel companies will hire lobbyists, fund political campaigns, and fight tenaciously for protection. Their potential gain justifies massive investment in political activity. But individual consumers won't spend hours researching tariff policy or traveling to Washington to testify before Congress—not to save a few dollars on their next refrigerator.
The result is predictable. The organized, concentrated interest wins. The diffuse majority loses. Not because the system is corrupt, but because rational individuals respond to incentives.
This pattern repeats endlessly across democratic politics. Sugar subsidies benefit a few thousand sugar farmers while costing millions of consumers. Agricultural price supports help concentrated farm interests while harming dispersed food buyers. Professional licensing requirements protect established practitioners while raising prices for everyone else.
In each case, the winning coalition is small but intensely motivated. The losing coalition is large but barely paying attention.
The Constitution as a Contract
In 1962, James Buchanan and Gordon Tullock published The Calculus of Consent: Logical Foundations of Constitutional Democracy, which became one of the founding documents of public choice theory. Buchanan would later win the Nobel Prize in Economics for this work.
Buchanan and Tullock drew a sharp distinction between two types of political decisions. Constitutional decisions establish the fundamental rules of the game—the framework within which ordinary politics occurs. Political decisions happen within that framework, following its rules.
Think of it like a sport. The rules of baseball—three strikes, nine innings, fair territory versus foul—are constitutional. Whether to bunt or swing away on a particular pitch is a political decision made within those rules.
This distinction matters because it suggests we should evaluate constitutional rules differently from ordinary policies. The question isn't which specific policies we prefer. It's which set of rules will, over time, produce the best outcomes for everyone.
Buchanan emphasized consent as the foundation of legitimate government. Just as market transactions require voluntary agreement between buyer and seller, political arrangements require some form of consent from the governed. The ideal constitutional rule, he argued, would be one that everyone could agree to unanimously—or at least one that no one actively opposes.
Bureaucracy: The Budget Maximizers
William Niskanen, in his 1971 book Bureaucracy and Representative Government, applied public choice thinking to the administrative state.
Consider the incentives facing a typical bureau chief. They're not paid based on how efficiently they deliver services. They don't receive bonuses for cutting costs or returning unspent funds to the treasury. Instead, their status, power, and often their salary depend on the size of their organization's budget.
Compare this to a business owner, whose income depends directly on the difference between revenues and costs. The business owner has every reason to eliminate waste and increase efficiency. The bureau chief has every reason to expand their empire.
This doesn't mean bureaucrats are evil or lazy. Many are dedicated public servants who work hard and care deeply about their missions. But they operate within a system that rewards growth rather than efficiency, activity rather than results.
Niskanen's model predicts that bureaus will tend to be larger than necessary, with budgets that exceed the true cost of delivering their services. The extra resources get absorbed into padded staffing, nicer offices, and expanded mandates—not waste in the sense of money disappearing, but waste in the sense of resources directed to purposes other than serving the public.
The Paradox of Voting
Here's something that has puzzled economists for decades: Why does anyone vote at all?
Consider the calculation facing a potential voter. The chance that your single vote will determine the outcome of a presidential election is essentially zero—far less than one in a million. Yet voting takes time and effort. You have to register, learn about candidates, travel to a polling place, wait in line.
If you're purely rational and self-interested, the costs of voting far exceed the expected benefits. You should stay home.
Yet millions of people vote in every election. Some theorists conclude that voting must be irrational. But economists Geoffrey Brennan and Loren Lomasky offer a different explanation. They distinguish between instrumental interests—practical benefits you hope to obtain—and expressive interests—the satisfaction of expressing your values and identity.
Voting might make little sense instrumentally, but it makes perfect sense expressively. You vote to declare who you are, to participate in a communal ritual, to feel like a good citizen. The act of voting is its own reward, independent of whether your vote changes anything.
This has unsettling implications. If voters are motivated by expression rather than outcomes, they have little incentive to vote wisely. Feeling good about your vote matters more than understanding policy trade-offs. You can indulge whatever beliefs make you feel virtuous or tribal, because your individual vote has no consequences.
The Myth of the Rational Voter
Economist Bryan Caplan pushes this logic further in his provocatively titled book The Myth of the Rational Voter. Democracy, he argues, doesn't just tolerate irrational beliefs—it subsidizes them.
Here's his reasoning. If you hold an irrational belief about your personal finances—say, that you can spend more than you earn indefinitely—you'll suffer the consequences directly. Reality will punish your error.
But if you hold an irrational belief about economic policy—say, that protectionism makes countries richer—you bear almost none of the cost. Your single vote won't change policy. Even if protectionist policies are enacted, you're just one of millions bearing the diffuse costs.
So why not believe whatever feels good? Why not favor policies that seem intuitively right, even if economists say they're counterproductive? The cost of being wrong is socialized across the entire population. The psychological benefits of comfortable beliefs are yours alone.
Caplan argues that voters systematically err in predictable directions. They're biased against markets and in favor of government intervention. They're biased against foreigners and in favor of protectionism. They're pessimistic about economic progress even when the data show improvement. And they underestimate the benefits of letting market forces work.
These aren't random errors that cancel out in the aggregate. They're systematic biases that push policy in consistently wrong directions. Democracy, in this view, tends to produce policies that most economists oppose—not despite voter choice, but because of it.
Regulation and Capture
George Stigler, another Nobel laureate, applied public choice thinking to government regulation in his 1971 paper on the theory of economic regulation.
The conventional story about regulation goes like this: Industries sometimes harm consumers through monopoly pricing, unsafe products, or environmental damage. Government steps in to protect the public interest by regulating these industries. Regulators serve the people.
Stigler suggested inverting this story. What if regulation typically serves the regulated industry rather than the public?
Think about who has the strongest interest in a regulatory agency's decisions. For consumers, any single regulation is a minor issue among thousands of concerns. But for the regulated industry, that agency's decisions are matters of survival. The industry has every incentive to invest heavily in influencing the agency—through lobbying, campaign contributions, expert testimony, and the revolving door of personnel moving between industry and government.
Over time, Stigler argued, regulatory agencies tend to be "captured" by the industries they're supposed to oversee. The regulated write the regulations. The foxes guard the henhouse.
This explains several puzzling phenomena. Why do existing firms in an industry often support regulations that raise costs for new entrants? Why do regulated industries sometimes lobby for stricter rules that would seem to hurt them? Because regulation can be a barrier to competition, protecting established players from upstart rivals.
Airlines lobbied against deregulation. Trucking companies fought to preserve their regulated cartel. Taxi companies oppose ride-sharing services. In each case, regulations that supposedly protected consumers actually protected incumbent firms from competition.
Pork Barrel Politics
Public choice theory helps explain the persistence of what political scientists call "pork barrel" spending—government projects that benefit a narrow constituency while imposing costs on everyone else.
Consider a congressperson deciding whether to support a highway project in their district. The project might cost $100 million in federal funds, drawn from taxpayers nationwide. But the benefits—jobs, improved infrastructure, grateful contractors—are concentrated in the representative's home district.
From the congressperson's perspective, this is an excellent deal. They get to claim credit for bringing home the bacon. Their constituents see tangible benefits. The costs are spread so thinly across 330 million Americans that no individual taxpayer notices or cares.
Now multiply this calculation by 435 representatives and 100 senators, each seeking projects for their own districts and states. The result is a budget full of local projects that collectively waste billions but individually make perfect sense for the politicians who support them.
The logic is similar to what happens in a restaurant when a large group agrees to split the check equally. Each diner has an incentive to order more expensive items, since they'll pay only a fraction of the cost. The result is a bill that everyone complains about but everyone contributed to.
Is There Hope?
Public choice theory paints a bleak picture. Politicians pursue reelection rather than the public good. Bureaucrats maximize their budgets rather than their efficiency. Voters indulge irrational beliefs because they bear none of the costs. Special interests exploit the logic of collective action to extract benefits from diffuse majorities.
But public choice also suggests paths forward.
One approach focuses on constitutional design. If ordinary politics is prone to pathology, perhaps we can design constitutional rules that constrain its worst tendencies. Balanced budget requirements, for example, make it harder for politicians to distribute benefits while deferring costs to future generations. Supermajority requirements for tax increases raise the bar for expanding government. Federalism allows citizens to vote with their feet, moving to jurisdictions with policies they prefer.
Another approach emphasizes transparency. If special interests thrive in obscurity, sunshine might be the best disinfectant. Public disclosure of lobbying activities, campaign contributions, and regulatory proceedings can help citizens understand whose interests are really being served.
Some public choice scholars point to what economist Gary Becker called a countervailing force. When predation becomes too costly—when special interest policies impose large enough losses on the general public—resistance eventually emerges. The deadweight losses from bad policies create incentives for reform movements, investigative journalism, and political entrepreneurs who challenge the status quo.
This suggests a kind of dynamic equilibrium. Special interests push policy in self-serving directions. But when they push too far, the costs become visible enough to provoke backlash. Politics oscillates between capture and reform, with the amplitude depending on how well constitutional structures contain special interest power.
The Virginia School Versus the Chicago School
Public choice theory developed along two somewhat different trajectories, associated with two universities.
The Virginia School, centered on the work of James Buchanan and Gordon Tullock at Virginia Tech and later George Mason University, tends toward pessimism about political outcomes. If politics is dominated by self-interested actors exploiting concentrated benefits and diffuse costs, democratic outcomes will systematically diverge from the public interest. The solution lies in constitutional constraints—rules that limit what government can do, regardless of what temporary majorities might want.
The Chicago School, associated with George Stigler, Gary Becker, and Sam Peltzman at the University of Chicago, reaches somewhat different conclusions. While sharing the Virginia School's assumption of self-interested political actors, Chicago economists argue that political competition tends toward efficiency over time. If policies create large deadweight losses—if they destroy more value than they redistribute—pressure will eventually build for reform. Politics, like markets, tends toward equilibrium.
These two schools have debated for decades. Virginia scholars see persistent government failure as evidence that constitutional reform is necessary. Chicago scholars see gradual improvement as evidence that the political market works, if imperfectly.
Both agree on the fundamental insight: understanding politics requires understanding incentives. The same tools economists use to analyze markets—rational choice, equilibrium, marginal analysis—illuminate the behavior of voters, politicians, and bureaucrats. Romance gives way to realism. And realism, however uncomfortable, is the first step toward improvement.
Applying Public Choice to Everyday Politics
Once you understand public choice theory, you start seeing its logic everywhere.
Why do agricultural subsidies persist even though economists almost universally condemn them? Concentrated benefits to farmers versus diffuse costs to consumers and taxpayers.
Why do occupational licensing requirements keep expanding, even for professions like hair braiding or interior decorating? Established practitioners benefit from restricting competition; consumers don't organize to fight back.
Why do retired politicians so often become lobbyists? The revolving door is a perfectly rational response to the incentives of the regulatory system.
Why do political campaigns focus on identity and emotion rather than policy details? Because expressive voting matters more than instrumental voting, and candidates who make voters feel good outperform those who explain trade-offs.
Public choice doesn't tell you which policies are right. It tells you why the policies we get might diverge from the policies we'd choose if we were designing institutions from scratch. It's a theory of political failure, analogous to theories of market failure—a framework for understanding when and why democratic decision-making goes wrong.
Armed with that understanding, we can design better institutions. Not by assuming that the right people will rise to power and do the right thing. That's the romance of government. But by creating rules, incentives, and constraints that channel self-interest toward public benefit—the same approach that makes markets work when they work well.
Public choice theory is, ultimately, an argument for humility about what politics can achieve and vigilance about whose interests political decisions actually serve. It's a reminder that the fundamental questions of political economy are not "What policies are best?" but "Who decides? And what's in it for them?"