Public Choice Theory

Abstract

P ublic choice should be understood as a research program rather than a discipline or even a subdiscipline of economics. Its origins date to the mid-20th century, and viewed retrospectively, the theoretical “gap” in political economy that it emerged to fill seems so large that its development seems to have been inevitable. Nations emerging from World War II, including the Western democracies, were allocating between one-third and one-half of their total product through political institutions rather than through markets. Economists, however, were devoting their efforts almost exclusively to understanding and explaining the market sector. My own piddling first entry into the subject matter, in 1949, was little more than a call for those economists who examined taxes and spending to pay some attention to empirical reality, and thus to politics. Initially, the work of economists in this area raised serious doubts about the political process. Working simultaneously, but independently, Kenneth Arrow and Duncan Black proved that democracy, interpreted as majority rule, could not work to promote any general or public interest. The now-famous “impossibility theorem,” as published in Arrow’s book Social Choice and Individual Values (1951), stimulated an extended discussion. What Arrow and Black had in fact done was to discover or rediscover the phenomenon of “majority cycles,” whereby election results rotate in continuous cycles, with no equilibrium or stopping point. The suggestion of this analysis was that majoritarian democracy is inherently unstable.