Public choice and public policy: The vulnerability of economic advice to the interpretation of politicians

The confidence with which politicians defend their policies is in marked contrast to the qualifications which academic researchers attach to their results. The difference is indicative of a failure of the political market, whereby politicians have an incentive to select policies for electoral and ideological reasons and to minimise any uncertainty associated with policy effectiveness. In this scenario dissension between economists is of value if it alerts individuals to the sensitivity of policy answers to the framework in which they are derived. Moreover, with government failure, public choice analysts are faced with the problem of how best to amend policy advice in order to allow for potential distortion at the hands of politicians.The authors are Senior Lecturers in Economics and Members of the Centre for Fiscal Studies, University of Bath. They wish to acknowledge the very helpful comments of Professors Gordon Tullock, Harry Collins and an anonymous referee. Any errors that might remain are, of course, the sole responsibility of the authors.     

Political Equilibrium and the Provision of Public Goods

This paper treats interest groups – peoplein their role as consumers of a public goodand people in their role as taxpayers – asthe unit of account for representativevoting. Each group is allowed to make aneffort to support its preferred candidateand, at the margin, the effort-benefitratio is the political price the group iswilling to pay to secure an additionaldollar of benefits.

Under reasonable assumptions, a uniqueequilibrium is assured and itscharacteristics are quite intuitive. Inparticular, the marginal political benefit(from consumers) of the last unit of outputmust equal the marginal political cost(from taxpayers). Alternatively, the rateat which the politician can transformtaxpayer income into consumer surplus mustequal the ratio of their political prices. The result will be optimal only on the rareoccasion when the effort-benefit ratios ofthe two groups are equal.

Since political goals are themselves ``public goods'' for thetwo interest groups,they face all the normal free riderproblems. Moreover, even small differencesin the effort-benefit ratios of the twogroups lead to large welfare losses.

How bad can things get? Each group has anincentive to try to overcome free-riderproblems and divert resources from privatesector activities to politics. And anyincrease in political effort is alwaysrewarded. However, (1) the marginal returnis always higher for the group with thesmaller effort-benefit ratio; (2) thedifferential return between the two groupsgrows the further we stray from optimality;and (3) both groups face diminishingreturns. These incentives may act asnatural checks on political outcomes –placing some limit on the amount of wasteand inefficiency democracy is likely toproduce.

The influence of a producer (of the publicgood) group that collects a rent increasesthe likelihood that public goods will beoverproduced. In fact, it is conceivableto have a good with no value to consumersproduced, solely because of the influenceof producers. Comparative static analysisreveal that the political system willrespond to changes in market conditions ina way similar to economic markets. Themagnitude of these shifts differs fromeconomic markets, however. For goods thatare being overproduced, the politicalmarketplace overresponds to changes indemand and underresponds to changes incosts. The converse is true for goods thatare being underproduced.

     

Developing and Testing a Composite Model to Predict Local Fiscal Distress

One of the thorniest issues of intergovernmental fiscal relations is state oversight of local fiscal affairs. States have oversight responsibility and must take action when local governments run afoul of responsible fiscal behavior. Less accepted is how states can detect local financial difficulties before they become emergencies that require state takeover. Research in the 1970s provided some assistance to states wishing to recognize local financial emergencies. But the time has come to look at this issue anew, particularly with an eye toward predicting local financial problems before they become serious. This article describes a 10-point scale that predicts these problems and tests the scale to predict local fiscal stress in a sample of Michigan local governments.     

Conducting Meta-Analyses of Evaluations of Government-Funded Training Programs

Government‐funded training programs in the United States have often been subject to rigorous evaluation. Indeed, many of these programs have been evaluated with random assignment, although sophisticated quasi‐experimental methods have also been used. Until very recently, however, there has been little systematic attempt to use the cumulative information vested in these evaluations to attempt determine which kinds of programs work best in which setting and with respect to which types of client. Meta‐analysis—a set of statistical procedures for systematically synthesizing findings from separate studies—can, in theory at least, address these and other topics that evaluation of individual programs cannot. This article discusses the steps in conducting such a synthesis, summarizes the results of three recently conducted meta‐analyses of training and welfare‐to‐work programs, identifies limitations to the meta‐analytic approach, and considers ways in which some of these limitations can be overcome.     

Reziproker Interessenausgleich in internationalen Verhandlungssystemen und Konkordanzdemokratien

Der Aufsatz bietet in seinem ersten Teil eine spieltheoretische Erklärung für jenes Muster der “zeitverschobenen gegenseitigen Kompensationen” (Sartori 1992), das sich als häufiges Einigungsmuster sowohl in nationalen Verhandlungsdemokratien beziehungsweise Konkordanzdemokratien als auch in zwischenstaatlichen Verhandlungssystemen findet. In seinem zweiten Teil diskutiert der Aufsatz die Rationalität von "zeitverschobenen Kompensationen" im Kontext der Mehr-Ebenen-Problematik, die für das Verständnis von politischen Verhandlungen zentral ist – seien es Verhandlungen innerhalb des Nationalstaats zwischen wichtigen gesellschaftlichen Gruppen, oder seien es Verhandlungen zwischen den souveränen Nationalstaaten. Der Aufsatz bietet auch für den Mehr-Ebenen-Charakter nationaler oder supranationaler Verhandlungssysteme eine einheitliche spieltheoretische Formulierung. Mit ihr lässt sich insbesondere die Frage nach demokratischer Authentizität und wohlfahrtstheoretischer Effektivität von Verhandlungssystemen (Scharpf 1970) diskutieren.     

Doing Rawls Justice: An Experimental Study of Income Distribution Norms

Distributive justice has been the focus of political theory with the postwar rise of the social welfare state, and Rawls' A Theory of Justice (1971) is arguably the most important work of political philosophy during that period. Parallel to this theoretical literature is a body of empirical research into distributive justice. We offer a synthesis of the theoretical and empirical approaches with an experimental study of how individuals use allocation principles in making judgments concerning income distribution under conditions of strict impartiality. Our experiment is designed in part to examine the extent to which they prioritize them consistent with Rawls' theory. We find that distributive justice judgments are complex but structured, with individuals tending to use several principles simultaneously and weighing them according to predictable factors, with sex and race being particularly important. We also find that individuals use several strategies in using competing allocation principles and that a considerable minority prioritize them consistent with a Rawlsian maximin strategy.     

The changing role of social experiments in policy analysis

Since 1968 more than thirty-five social policy experiments have been conducted in the United States. During this period through 1976 these experiments were generally long-term, large-scale tests of major new programs; thereafter, experiments became markedly more modest in scope. Although hundreds of millions of dollars were spent on the earlier programs, the experiments probably had only a negligible impact on policies. This result stemmed from a variety of factors: Social testing actually tends to exert a conservative influence on policymaking; and the time required to complete experiments and interpret results is often incompatible with the needs of policy makers. In addition, test results are often not effectively communicated to Congress, the administration and the public, and even when the results are conveyed, policy makers are frequently skeptical about the soundness of the methodologies employed. If recent experimental programs are to exert more influence on policymaking, program oficials will need to address these dificulties.     

Notes on the empirical analysis of cyclical processes

Abstract. This short note discusses a few general data-related problems which occur in analyses of cyclical processes, and offers a brief overview of the advantages and disadvantages of the various approaches and techniques that can be employed. The conclusion is that one should be flexible in approach; it is always possible to model data in more than one way. A prudent strategy will always include the specification and testing of various models.