Public Choice Theory - Background

Background

Prior to the emergence of public choice theory, many economists tended to consider the state as an agent outside the scope of economic theory, whose actions depend on different considerations than those driving economic agents. (The many other economists who did place the state and its agents within such theory include Vilfredo Pareto.)

Public choice theory attempts to look at governments from the perspective of the bureaucrats and politicians who compose them, and makes the assumption that they act based on a budget-maximizing model in a self-interested way for the purpose of growing their own power and influence. The theory aims to apply economic analysis (usually decision theory and game theory) to the political decision-making process in order to reveal certain systematic trends towards inefficient government policies. There are also Austrian variants of public choice theory (suggested by von Mises, Hayek, Kirzner, Lopez, and Boettke) in which it is assumed that bureaucrats and politicians may be benevolent but have access to limited information. The assumption that such benevolent political agents possess limited information for making decisions often results in conclusions similar to those generated separately by means of the rational self-interest assumptions. Randall Holcombe and Richard E. Wagner have also developed the notion of "Political Entrepreneurship".