A key assumption of the public choice model is that government policymakers will pursue their own self-interests

Question

Economists assume that consumers and firms pursue their own self-interests when they interact in competitive markets and this interaction results in efficient economic outcomes. Does the pursuit of self-interest by policymakers result in efficient economic outcomes?

Answer 1

The public choice model can be used to explain why the actions of self-interested policymakers often do not result in efficient economic outcomes. The model assumes that the self-interest motives of policymakers lead them to take actions that result in their being elected, or re-elected. Because elections are won by candidates who receive a majority (or, in some cases, a plurality) of the votes cast, candidates must appeal to the preferences of the voter who is in the political middle. Once in office, policymakers take actions that affect all of their constituents, not just those who agree with these actions. This is in contrast with private markets, where consumers are under no obligation to pay for a good or service they do not want. Other reasons why a policymaker's self-interest motives lead to economically inefficient outcomes are: (a) rent seeking by individuals and firms for the purpose of supporting special interest legislation that makes themselves better off at the expense of others, and (b) the rational ignorance of voters who pay the costs of this legislation. Since the benefits of legislation are concentrated among a small number of individuals and firms, they have an incentive to use resources to convince policymakers to support their interests. Most voters who must pay to support the legislation have little incentive to oppose it, since the cost to each individual voter is low. As a result, policymakers often support legislation that results in greater costs to taxpayers than the value of the benefits the legislation provides.