Public choice theory
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
Public choice theory uses the tools of economics to study politics. It assumes that voters, politicians and bureaucrats pursue their own interest, just as buyers and sellers do in markets. Politicians want votes, officials want bigger budgets and power, and organised groups lobby for favours. So government failure is as real as market failure, and state action does not automatically serve the public interest. The key work is Buchanan and Tullock's The Calculus of Consent (1962). James Buchanan won the Nobel in 1986.
Example
Under India's licence raj, industrialists spent more time trying to get a licence or lobbying than improving their products. This is rent-seeking: using effort and money to win special favours from the state instead of creating new wealth.
Don't confuse with
- Market failure: the market itself gives a bad result, for example through pollution or monopoly. Public choice theory is about failure by the government that is supposed to fix such problems.
Related concepts
- Monetarism
- Chicago school
- Cantillon effect
- Adaptive expectations
- Rational expectations
- Lucas critique
- Real business cycle theory
- Tinbergen rule
- Austrian school
- Economic calculation problem