Contributions of Public Choice Theory to Political Economy (Part-1)

Although the emergence of Public Choice economics dates back to the 1950s and 60s, its philosophical roots can be traced back to the views of 18th century thinkers. The precursors of Public Choice are the continental European scholars Sax, Mazzola, Pantaleoni, De viti de Marco and most importantly Knut Wicksell. Wicksell argued that public economics should be considered in conjunction with public decision-making (the decision of voters, directly or through their representatives, on what level of public goods and services to produce and how to share their costs). According to Wicksell, the rule of unanimity or near unanimity applies to achieve efficiency in the Pareto sense. Wicksell's thesis influenced the public finance theory of Buchanan, the founder of the public choice school. According to the public choice school, the institutional structure of how the level and composition of taxes and expenditures are decided in a society has an impact on the outcomes. The behavior of political actors changes according to the choice of institutions and rules. (Buchanan, 1968, preface, p. 13)

In addition, Jean-Charles Borda and Marquis de Condorcet, who were actually mathematicians who dealt with the problem of social choice in the 18th century, have an important place in Public Choice economics. In the 19th century, Panteleoni, an Italian economist, argued that the analysis of the public sector cannot be independent of the political level. The application of Marshall's (1890) supply and demand model within the partial equilibrium approach to the public economy was not long delayed; for the first time, Italian economists Viti de Marco and Pantaleoni thought that the marginalist method could be applied to the public economy at the end of the 19th century. In the 20th century, R. Musgrave's 'Voluntary Exchange Model' (1939) and Samuelson's (1954) analysis of public expenditures were the first foundations of the marginalist method. Long before Samuelson's (1954) public expenditure model, Lindahl (1919) worked on the optimal level of production of public goods by creating a public economy version of the supply and demand model in the private economy. Lindahl's 2-individual model was later generalized by Samuelson. However, both models ignored the problem of explaining the demand for public goods (due to the free-rider problem). In these 'voluntary exchange' models, which are still influential today, the relationship between the tax-price, which is accepted as the price of public goods, and the production quantity of public goods yields a demand function and the optimal production quantity of public goods is estimated on the basis of this relationship. Pigou (1928) was the economist who combined marginalist economics with utilitarian philosophy to examine public policy instruments to maximize the utility of society. These include the Pigou tax and progressive taxation, which were proposed to solve negative externalities. Pigou's theory of public finance was generally based on the view that welfare would be maximized at the marginal point where benefits would equal costs at the margin. (Şeker, 1996, p.11)

In the 20th century, the works of Harold Hotelling, James M. Buchanan, Kenneth Arrow, Anthony Downs, Duncan Black, William Riker, James M. Buchanan and Gordon Tulluck, Mancur Olson and William Niskanen played a pioneering role in laying the foundations and developing the Public Choice approach. However, there are five main works that stand out in the literature on Public Choice economics. These are;

- Duncan Black's "On the Rationality of Group Decision Making",

- Kenneth Arrow's "Social Choice and Individual Values",

- Anthony Downs' "The Economic Theory of Democracy",

- James M. Buchanan and Gordon Tullock's "Accounting for Unanimity: The Logical Foundations of Constitutional Democracy" and

- Mancur Olson's "The Logic of Collective Action".

Duncan Black's early research on decision-making in committees is considered the beginning of modern Public Choice economics. Black introduced the median voter theory, first advocated by Harold Hotelling, and an analysis of the behavior of candidates and committees in elections.

In sum, Mueller, who made significant contributions to public choice theory, briefly defined the theory as "the economic discipline of non-market decision-making" (Aktan and Bahçe, 2007: 7). Public choice theory, defined as "Economic Analysis of Policy Science", is a subfield of rational choice theory (Heywood, 2006: 397) and tries to explain the decisions and practices taken in the political process based on the tools, methods and assumptions used by economics (Çevikbaş, 2006: 283). The theory of the state, voting rules, voters' behavior, party politics, interest groups and bureaucracy, which constitute the field of study of political science, also constitute the field of study of public choice theory (Mueller, 1989: 1).

Basic Assumptions of Public Choice Theory 

It essentially takes the tools and methods developed in economic theory for highly detailed analysis and applies them to the political process, the public sector, politics and the public economy. As in economic theory, "Public Choice" analysis seeks to relate the behavior of individual actors in the public sector, such as voters, candidates for office, MPs, leaders of political parties or party members and bureaucrats, to the combination of outcomes that we observe and can observe. Moreover, Public Choice analysis is the application of the theoretical methods and techniques of modern economics to the study of political processes (Brennan and Buchanan, 1988: 179).

Theoretically, as a contribution to economics, it examines the boundaries of the public sector and the interactions of the constituent parts of the public sector within the context of economics and politics, and the political and bureaucratic decision processes in the public sector are analyzed through economic findings (DEMİREL, 2005, p 110). As a contribution to political economy, public choice economics adopts some assumptions of economics and adapts the tools of economics to political science based on these assumptions. In this context, the Public Choice approach is based on the acceptance of three basic assumptions:

- Methodological individualism

- Political exchange and

- Rationality and Maximand Principle

Methodological Individualism:

With the acceptance of the assumption of methodological individualism, Public Choice economists brought a different perspective to the science of politics and especially to the concept of the state. Until this period, the state was seen as a decision-making unit and was considered to be independent of the individual. With the work of Public Choice theorists, the concept of the state was associated with the individual and started to be characterized as a body formed by individuals in line with their common interests. According to the approach, all decisions in a society are determined by individual preferences. Individual preferences are decisive, not non-individual organic units. Therefore, Public Choice Theory is methodologically based on individualism (Hauwe, 1999, p.609).

Political Exchange:

The process of "political exchange" is necessarily more complex than economic exchange for two different reasons. First, the basic "political exchange", i.e. the agreement underlying the established constitutional order, must precede any meaningful economic interaction. Second, even within a well-defined and functioning legal order, "political exchange" necessarily involves all members of society, rather than just the two exchanging individuals that characterize economic exchange.

Rationality and the Maximand Principle:

According to public choice theory, individuals have rational and consistent preferences. In the decision-making process in the public economy, individuals show a similar motivation for behavior in the private economy (market economy) by making rational choices. As in the private economy, the principle of "Homo Economicus" or "private interest maximization" applies in the public economy. (Buchanan, 1987, p.245) In economics, "private interest maximization" is considered as "utility maximization" for the consumer and "profit maximization" for the producer. When we adapt this to political economy, we see that the reflections of this private interest maximization in social preferences are the "utility maximization" of voters, "vote maximization" of political parties, "budget maximization" of bureaucrats and rent maximization of interest and pressure groups. This situation is called the "Maximand" principle.