ECON 369

Lecture Seven - Public Choice Cont. - Some More Insights




Sources:  Government Failure by Gordon Tullock, Arthur Seldon and Gordon Brady, others (see in text).




Vote-trading or in this case, Logrolling, usually occurs with representatives.  Let's elaborate on this theory some more: (as per Tullock)


Explicit logrolling:  explicit vote trading among politicians.



Implicit logrolling:  measures that different politicians favor can be incorporated in one piece of legislation and a single vote taken on the bundle (Tullock's bundling).




A tie-bar:  A tie-bar is a package of legislation in which different and often unrelated bills are tied together and voted on as a unit. A tie-bar is a mechanism designed to facilitate logrolling and prevent non-compliance by individuals involved in it.


Regardless of whether it is explicit or implicit, logrolling occurs because most laws have differential effects on different groups and parts of the country. 


Changes in tax laws for example, will benefit some more than others.


The result is that more bills are passed -- and more measures are passed hidden within bills. 



Benefits and Harm from Logrolling

Logrolling can be “desirable.”  If a project will benefit some city a lot and would have a relatively modest cost to the national taxpayer (again, assuming some hypothetical measure of value - and assuming that one believes redistribution of wealth via the government is moral).


Without logrolling, the project would not happen.  Similar to the example of vote trading among voters.


But usually logrolling is talked about with respect to the harm that it creates.


Logrolling leads to almost all projects being voted through, including those that have a net value to society that is negative. 


There can be so much logrolling (and so many bills passed) that even the “beneficiaries” of passed legislation (say, people in one state) may, on net, be worse off because of how much they have to pay in federal taxes to support the other legislation passed (that benefits other states).



Logrolling partly explains such public-sector programs as agricultural subsidies and other government spending that benefits a very small group at a large cost spread among national taxpayers.

Assuming the voter is very badly informed (rationally ignorant and maybe also rationally irrational) one could readily anticipate a great amount of inefficiency from logrolling.  Because voters are normally particularly badly informed about legislation that affects them very little.


The Morality of Logrolling

Some people regard vote trading as immoral.  The reason being that when legislator’s vote trade their public behavior does not square with his or her private values.  They vote for bills that they really don't value.


Does bundling all these projects together in one gigantic bill make it moral?  After all, then they would be voting for something they actually agreed with.


This ignores the procedure by which the bundling takes place.  Trades take place in committee before the final bill is ever developed.  So the “immoral” act takes place prior to the bundling.


Information Problems and Logrolling

As noted, most voters are not informed, especially about projects that don’t affect them very much.


The concerns that voters hold intensely are far more important to the members of Congress than those about which voters have only minor feelings and certainly more important than those of which voters are not aware.


As we have discussed:  Politicians as Vote Seekers:  Politicians compete for votes by promising to work in the legislative body for programs that please a majority of the voters in their districts.


Who is more likely to vote?  People with a strong special interest.


Therefore, most political battles are likely to take place over proposals that are of primary interest to small groups.  Members of congress wishing to be reelected will take careful account of issues and bills that strongly affect small minorities, whether it is a reduction of transfers to them, an increase in the taxes specific to them, or a special tax exemption

General population issues are given very little attention.

As we have discussed:  The special interest groups are more likely to vote – but also more likely to give the politician support, financial and otherwise, for election purposes.


Furthermorethe marginal benefit to politicians of attracting more votes declines as the number of votes they already have increases.  Once they have enough votes to win an election, the benefits of attracting more votes is low.  Why announce a new policy that might alienate existing voters? 

This leads us back to the median voter model as it applies to representative government.  In order to please as many groups as possible, or not alienate as many as possible – the politician will move towards the middle of the road, trying to please as many special interest groups as possible.


A representative is less likely to be middle of the road if his constituency is smaller and he has a few strong special interest groups that overlap in some way.  For example:  environmentalists and animal rights groups would overlap; property rights advocates and the right to bear arms groups.

What if two politicians espouse the same platform on some issue?  What’s their strategy then?

The politicians want to distinguish themselves without losing voters.  How?


1)     “Go negative” and label the opponent “too liberal” or “too conservative” depending upon which voters the politician is trying to attract.  Stake out the middle ground and represent the other as “too extreme.”  Or go negative on a more personal level - dig up some dirt!  Make personal attacks.


    Have you seen this happening recently?  Examples?



2)     Choice of political party is important.  It is like a “brand name.”  So voters (being rationally ignorant or rationally irrational) might vote simply on party grounds.  So the movement towards “independent” can be explained by this.  Saying the other two parties are “extreme.”  The problem is, a third party can usually only attract voters from the “tail” of the distribution.  But if there are enough people who are “independent” then they can really make a difference in an election.


 So - what institutional changes could take place that might limit logrolling?

1. Term limits:


Why?  Term limits are likely to reduce the frequency of logrolling, because a politician whose term is about to expire and who cannot get reelected has little incentive to cooperate with a logrolling effort.

If his optimal strategy is to cheat on his last vote, then other politicians may try to cheat him on his second-to-last vote, and this reasoning can be extrapolated indefinitely - often resulting in non-cooperation on present logrolling efforts.


2.  If every voter (politician) is given a fixed number of votes to allocate among the issues that she sees fit, this would formalize the logrolling process and allow for a limited trading of votes - but only so long as individuals have votes remaining to trade.

This formalization would prevent indefinitely large voting blocs from forming, and it would also lead to a tradeoff between individuals investing all their votes into their preferred issue and trying to garner other votes by devoting their own votes to other issues.


3.  What else?


Organized Lobbying and PACS

Lobbying by special interest groups and PACs (Political Action Committees – group of private lobbyists) make public choice very difficult.

The problem was formally analyzed by Mancur Olson – theory of groups.

 He pointed out that, when a relatively small number of people are heavily affected by a collective activity, organizing is in their interest.



1.      Individuals in the group will either benefit a good deal if the political action is in their favor or be injured a good deal if it is against them.



2.      Because there are only a few of them, transaction costs to organizing are relatively low.


On the other hand, if the legislation affects a large number of people but represents only a small amount to each of the group, the converse applies.


Concentrated Benefits and Diffuse Costs


Let’s take an example.

Let’s say that the proceeds of a tax of 5 cents levied on every citizen of Durango are to be given to this class for writing some ideas on passing or not passing a new housing development.  We (the class) would be very interested in getting this bill passed – we would benefit a lot but each citizen would only pay 5 cents, so it wouldn’t be worth it for them to spend much time against it.

Will it pass?

It might – but there is still a large probability it won’t as the transfer is written – a per head tax.  So perhaps we need to figure out how to hide the tax (maybe call it a “fee” instead of a tax – tie it to the sale of something)?


Even though this might pass -  how can we increase the probability that it does?


Other ideas?


Other ideas?



Another example:  At one time in the U.S. there was a tariff to protect the manufacturers of chin rests for violins.  Only one company employing four or five people made the chin rests.  Each violin purchaser had to pay 3-4 cents more so they didn’t lobby against it.  But the manufacturer did lobby for it.


What argument was given:  potential unemployment of the four or five people he employed to do the chin rests. 


A small tax on violins to provide a pension for the employees of the company would have failed because, although economically more efficient, it would have been too obvious.


Lobbying and Inefficient Transfers

Conclusion:  there is a political aversion to direct transfer payments – and this means that protected projects are much less efficient than they would be otherwise.  The cost to the people who incur the cost is higher and the return to the people who receive the benefit is lower - than if a simple transfer were politically feasible.


So a lot of resources are spent “hiding” taxes or making them less obvious in some way.




Lobbies and the Public Interest

You will most likely hear a public interest argument from a lobbying group.  Public interest arguments normally require that the project itself be designed in such a way that the direct transfer is hidden from the public eye. 

An old example is the farm program in the U.S.  Most citizens don’t have a clue they pay more for vegetables, etc. because of the farm program.  The cost of the program far outweighs the benefits the special interest group receives (or at least most economists think so – again, they actually can’t measure the costs/benefits – but they see how much farmers gain and how much waste there is in the program and make the assumption).

The public interest argument:  We will all starve if we don't support farmers.


Answer:  Abolish Privileges


NOTE:  You might want to think about this with respect to your project:  A theory you could use -


The argument:  Reduce the federal budget while making sure that the cuts fall predominantly on the projects of special interest beneficiaries.  This would make everyone better off because, although almost everyone would lose some kind of special privilege, the cost of all of the special privileges held by others is greater than the benefit received from any one special privilege than an individual may have. 


AGAIN - In other words -- people are actually paying MORE for their special project (because of the taxes they are paying for all others) than they are benefiting from it.  But because the taxes are not obvious, they don’t know this.


(This might not be true for everyone -- but probably for most).


Here’s the problem:  although I would be better off if all special privileges were eliminated, I would be even better off if all were eliminated except those that benefited me specifically!


Hence we have the prisoner’s dilemma.  Each voter will continue to vote for special privileges for themselves – if I don’t and everyone else does, I lose.  If I do and everyone else doesn’t, I win.


So, the special interest legislation continues....


And Last but not least we must discuss Government Bureaus!


Government Bureaucracy


Premise:  The incentives facing public officials and the nature of our representative form of government provide an environment for government growth to occur in the absence of citizen demand.


Bureaucracy Theory (Niskanen)



        a. government bureaucrats maximize the size of their agencies' budgets in accordance with their own preferences and are able to do so because of the unique monopoly position of the bureaucrat.  


        b. monitoring problem - 

                1.  A bureau does not produce a tangible output - so it is difficult or impossible to accurately judge the efficiency of production when no tangible or countable unit of output is available.


                2.  A bureau does not face competition with similar bureaus - it has monopoly status (the FBI does not compete with Deb's Bureau of Investigation - what it costs to operate such a bureau is not determined by opportunity cost of resources - as in markets - therefore, the Bureaucrat can defend a very large budget by saying it is "necessary" for the bureau to be effective).


                3.  Only the bureau knows its true cost schedule because funding is provided by agents external to the bureau.  So they overstate their costs in order to receive a larger budget.


                4.  The bureaucrat can make take-it-or-leave-it budget proposals to the funding agency (does not present a cost schedule, etc. - just, this is the amount I need to operate, period).


                        In a lot of cases with government funding - if a bureau does not use its budget for any fiscal period, it will lose some of its funding -- so the incentive is to use it all and then complain that there wasn't enough.


        The model:  Bureaucrat's utility function = f (desire for salary, prestige, power, etc.).




        1.  Bureaucrats can generate budgets that are in excess of what citizen demand warrants and beyond the efficient level.


        2.  The costs of government organizations compared to private organizations that provide similar services are typically higher.



Economist Dennis Mueller (1989) found that after doing a survey of 50 studies comparing public and private provision, “in only 2 . . . were public firms [entities] found to be more efficient than their private counterparts . . . The evidence that public provision of a service reduces the efficiency of its provision seems overwhelming” (Public Choice II, Cambridge, UK: Cambridge University Press, pp. 261, 266).


Other theories given for (2) above --


Reasons why government bureaus are inefficient (relatively speaking):


  1. The monitoring problem:  There is a clear objective in a private firm:  profit for owners.  This is also easy to measure.

         The objectives of government bureaus are not so clear – and often difficult to measure.

               This makes control much more difficult. 



  1. Increasing the efficiency of a corporation has clear pay-offs for some people, often big ones.  This increases the incentive for this to happen.

          Increasing the efficiency of a government bureau has payoffs to taxpayers that they often couldn’t see if they even knew about it – there is no incentive to do so.



  1. Government employees often have tenure – can’t fire them.  Even without tenure it is difficult to fire a government employee due to work place regulations.  So they worry more about decisions that might make them look bad instead of decisions that would lead to good outcomes.



  1. Since bureaucrats are agents of politicians, there are systems of accountability – these systems are not based on efficiency, but on politics.




Possible Answers to these problems:


1.    Decentralization of government and transfer of many activities to a lower level of government.  This is most effective when there is decentralization on the supply side and


2.    Competition on the demand side – otherwise it might not work at all.  (i.e. the school system)  Competing bureaus.


3.    Contracting out to the private sector - or turning over activities to the private sector completely.


4.    Depriving bureaucrats and their families of the right to vote (Tullock).




Problems (with the Niskanen model):


        1.  At the more local level, can a bureau really expand beyond what citizens demand?  Examples:  school can't expand beyond number of students, garbage collection can't expand beyond what needs to be collected.


        However -- the school district or garbage collection agency can provide poorer service at a higher cost than is necessary.



        2.  Is the cost difference between public and private organizations due to lack of competitive pressure or due to the bureaucrat's attempt to increase their budget?


            There are some checks on the bureaucrat (funding agencies, the General Accounting Office, etc.)