The Economics Of Collective Choice
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The Economics Of Collective Choice

Joe B Stevens

  1. 412 pages
  2. English
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eBook - ePub

The Economics Of Collective Choice

Joe B Stevens

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About This Book

The study of government policy and public decision-making has experienced a renaissance in recent years as economists and political scientists have come together to form the new field of collective, or public, choice. The Economics of Colletive Choice is a breakthrough text in this field. It is the first to approach the public policy process with a sophisticated understanding of both economics and government and to present these ideas with a grace and accessibility entirely appropriate to undergraduates. Collective choice economics as presented by Professor Stevens is a mix of applied welfare economics and public choice analysis and does not presuppose a knowledge of intermediate microeconomics. Professor Stevens credits both the conservative insight that government intervention is often worse than what it is intended to cure and the liberal view that efficiency and justice are sometimes best served by intervention. This approach allows students to find their own balance between these ideological views. This unique book is designed as a core text for courses on public choice and public policy analysis. It will also find wide use in courses on public administration or public affairs and as a supplementary text in courses on public sector economics and public finance.

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1
Introduction

1.0 Economics and Collective Choice

Neighbors get together to discuss what they can do about preventing burglaries in their part of town. At the state capitol, the legislature debates a proposal to reduce air pollution. At a nearby convention, manufacturers of electronic equipment discuss a legislative proposal to raise tariffs on imports from Japan. In the countryside, angry farmers debate how to deal with a neighbor who sells his milk as usual instead of dumping it to support their boycott. A voter wonders whether reading the voter’s pamphlet is worth the time it takes, and indeed, whether voting itself is worth it.
These situations all involve collective choice, and they all involve economics. The purpose of this book is to present a set of economic concepts that allow a better understanding of collective choice situations and to show how much they have in common. Many of the economic concepts have been developed in the past thirty years, but many of the issues are as old as civilization. It might not be difficult to imagine the cave people, all armed with large clubs, and all with strong opinions about who should go out and fight a marauder and who gets to stay in the cave. Our present means of resolving issues may be more sophisticated, but we still worry about marauders and we still debate who should do battle and who gets to stay in the cave.
Economics and collective choice are terms that need to be defined and explained. Economics can be defined, as usual, as the allocation of scarce resources among alternative uses, but collective choice requires more attention because it is probably less familiar to students of economics.

1.1 Elements of Collective Choice

Participants, methods of choice, and criteria for choosing are the key elements of collective choice. Let’s deal briefly with each of these.

1.11 Participants

A simplistic view of collective choice is that everyone in a group comes together to decide a matter of common interest. This invites images of community, belonging, and responsibility, but it characterizes only a small part of collective choice. For one thing, participation-or the lack of it-is an outcome of an incentive system. Participation in collective choice is usually voluntary, but unless social pressure, civic pride, or the prospects for gain cause one to participate, voluntary may mean nonparticipatory. You might participate by voting, but your vote is only one of many, and its absence probably won’t be noticed. Thus, you may decide not to vote. You can work to elect a candidate to serve in the U.S. Senate, but the election bid may not be successful. You can apply to work for a government agency where you can participate in collective choice by helping to carry out-and maybe bend-legislative enactments.
Voters, senatorial candidates, and government workers aren’t the only ones who participate in collective choice. Business firms, trade associations, labor unions, nonprofit organizations, and many other interest groups may also participate. There may be many-or few-participants in collective choice. They may be elected, they may be appointed, they may be hired, or they may volunteer to participate. And they may have very different points of view about how to resolve an issue.

1.12 Methods of Choice

The second element of collective choice is the method of making decisions. There are several methods of choice, and more than one is usually used in a particular situation. A dictator might make all major decisions in a very centralized fashion with religion, tradition, or military power as the basis for authority. This extreme method of making decisions doesn’t sound very attractive, but even its critics admit that it can save on the use of resources. Serfs and vassals in feudal times had very few rights and civil liberties, but they didn’t have to spend much time on matters of collective choice.
At the other end of the spectrum is agreeing collectively to use the market as a decentralized way to make decisions: Individuals choose what they will buy and sell. To a great degree, people make their own decisions about where to live, where to work, what clothes to buy, and where to do the grocery shopping. We collectively decide to allow individual choice to work when we resist centralized control over these types of decisions. Others could, after all, make these decisions for us.
Another method for making collective choices leans heavily on competence or expertise, drawing on the advice of someone with special skills that are usually technological or scientific. In After the Revolution (1970), Robert Dahl noted that the passengers aboard an aircraft that has developed engine trouble aren’t likely to insist on voting on what to do; they expect the pilot and crew to be trained to deal with such emergencies. People aren’t always willing to follow the voice of competence; many still use tobacco, for example, in spite of scientific evidence that smoking may cause cancer. Should people always (or usually) defer to competence? Hank Jenkins-Smith (1990) has recently examined the tensions that exist between authority and democracy in an increasingly technical society; not surprisingly, the issues are complex.
Consensus is another way to make collective decisions. With this method a group doesn’t decide until everyone agrees on the fundamental issues, even though they may still disagree on the details. The League of Women Voters has operated with this method for many years. Despite its factions, Congress occasionally passes major legislation by a nearly unanimous vote, which indicates that the members have reached consensus on that issue. But the process of reaching consensus can be slow, and sometimes matters won’t wait. Whether a consensus is right can also be debated. The dissent by Senators Wayne Morse (Ore.) and Ernest Groening (Alaska) on the Gulf of Tonkin Resolution early in the Vietnam War, for example, was later hailed as an act of courage and wisdom.
Because we often can’t wait for a consensus to emerge, we often use voting to decide an issue. Before we vote, we have to decide what we’re voting on, decide on a voting rule, and decide who can vote. Issues need to be defined; they don’t just appear, full-blown, out of thin air. Should we use majority rule, unanimity, plurality, or some other method of voting? We usually vote by majority rule. Our founders, however, weren’t overly impressed with the wisdom that the working class of the late eighteenth century might display in voting. An example of this attitude toward majority rule, one held by Gouverneur Morris, an aspiring young politician from New York and soon-to-be statesman and diplomat, was cited by historian Richard Hofstadter. As Morris saw the working-class voters, “The mob begin to think and reason. Poor reptiles! … They bask in the sun, and ere noon they will bite, depend upon it. The gentry begin to fear this” (1974, p. 6). The franchise, the matter of who can vote, can also be thorny. Mental competence may be required by voting laws, and minimum ages usually apply.
Another way to make collective choices is through representation-by electing people to represent us on school boards, city councils, and in state legislatures and Congress. This is a practical alternative. Usually the question is not whether we should have representation but what type of rules and incentives will cause representatives to be responsive to our needs and wishes. As we’ll see later on, this isn’t a trivial matter.
We could choose to have governance by the elite, by those who have somehow risen above the masses. If force was the basis for this elite authority, we would probably regard the elite as dictatorial, but if their authority is based on competence, as is the case with the captain of an airliner, this type of governance might be more acceptable. In his classic study of Middletown (1961), Robert Dahl found that most of the major community decisions were made by a few local leaders, many of whom were business and professional people rather than elected officials. Dye and Ziegler (1990) believe that the elite have historically dominated collective choice in this country but that they have often done so with considerable sympathy for democratic values.
Another method, although somewhat startling at first thought, is for volunteers to make collective choices. This might seem like an invitation to dictatorship, but our representative process actually involves a great deal of voluntarism by those who run for Congress, work for government agencies, or serve interest groups and other nongovernmental organizations. Because they are volunteers, they are likely to have strong views on certain issues, and this often invites participation by other volunteers with opposing views.

1.13 Criteria

The third key aspect of collective choice involves criteria (or reasons) for choosing one collective action over another.1 We have come to accept simple criteria for some decisions. A common criterion for enrolling a child in public kindergarten, for example, is that the child must be five years old by October 1. The usual age criterion for obtaining a driver’s license is that the driver must be sixteen years old. As issues become more complex, however, simple criteria are not adequate for collective choice. Instead, we often need to consider several reasons for taking a particular course of action.
Most likely, however, the criteria for collective choice are not stated, are vaguely stated, or are misstated by individuals and groups who are interested in particular outcomes. One reason for the lack of clear, accurate statements of criteria is that it may be hard or even impossible for people to identify their reasons for supporting an action. People might like small neighborhood parks and public libraries, but they might be hard-pressed to say exactly why they feel this way. Fortunately, it isn’t usually necessary to agree on criteria if a course of action can be agreed upon. I might like parks because they provide open space; you might like them because trees and grass release oxygen. Together, we can agree that we should have parks, but maybe for different reasons. Charles Lindblom (1959) characterized this as muddling through, a collective-choice process that features agreement on actions rather than agreement on objectives, one that stresses means rather than ends. According to Lindblom, this method is sound and practical despite its name.
The misstatement of criteria, however, is often a result of incentive structures. That is, it may be advantageous to be vague or misleading about one’s reasons for opposing or supporting certain courses of collective action. Suppose that a real estate developer buys a pleasant pasture across from your house and proposes to tum it into a subdivision of tract houses. As an adjacent homeowner, you may not like this. How should you argue your case before the local planning council? You could try to protect your self-interest by saying that the development would ruin your view. Others, however, might say, “That’s tough; it ruined someone else’s view when you built your house.” People in these situations tend to appeal to the “public interest” with a collective rationale for fighting the subdivision: It would ruin our view (not just my view), it would clog our streets, it would increase the crime rate in our community.
Whether these claims are valid depends on the situation, but the incentives for exact and honest statements of criteria for choice are often weak. Morris Fiorina, a political scientist, puts it concisely: “History provides too many examples of special-interest wolves wearing public-interest fleeces” (1989, p. xvi). Because of the weak incentive structure for stating one’s reason for doing something, another political scientist, William Riker (1986), greatly downplays the role of criteria; he focuses instead on political manipulation through the formation of coalitions, and through strategic voting and the manipulation of voting dimensions. We’ll consider these in Chapter 6; each strategy is designed to secure an outcome that is desired by those who promote the strategy.
In light of the very real difficulties in stating criteria for collective action and because of the incentives for people to misstate their real reasons for action, economists like to think in terms of two criteria for collective choice. The first is economic efficiency, or, so to speak, the size of the economic pie. The second criterion is equity, or how the economic pie is divided among members of society. Equity, ethics, fairness, justice, distribution: All fall within the second criterion as desirable goals that a society might seek. Economists tend to lump them together in a rather cavalier manner because they have no special expertise or authority on these matters. Economic efficiency, however, is unique to economics. It is based on the notion that, other things equal, a larger set of goods and services is better than a smaller set, something that we’ll discuss more in Chapter 2.
If economists are going to advise policymakers, they need to state the criteria that lie behind their recommendations. As an individual, I may buy a blue shirt if I like blue shirts. And maybe it’s all right if I vote for Senator Smith because he looks like my grandfather. As an economist and policy adviser, however, I (or we) need to be able to justify my (our) advice on the basis of explicit criteria that others can accept or reject. This is all the more important when the two criteria of efficiency and equity fail to work in the same direction on an issue. What is efficient may not be fair, and what is fair may not be efficient. Thus, trade-offs between efficiency and fairness often have to be made in collective choice. Both of these actions-making criteria explicit and dealing with trade-offs-can help economists in assisting with collective choice.
Economists might agree that it would be handy to consider only efficiency and equity as criteria, but it is usually difficult to compress policy outcomes into just these two criteria. Practitioners in the academic field of public policy analysis often think in terms of multiple attributes of outcomes (Stokey and Zeckhauser, 1978) or multiple-criteria decision-making (Zeleny, 1982).2 To cite Stokey and Zeckhauser,
If the assortment of possible outcomes of a policy choice is measured in terms of a single attribute, such as dollars, it isn’t difficult to decide that more is better than less (or worse, if you’re talking about costs)…. The trouble is that most policy proposals … serve a variety of objectives, and their outcomes are described in terms of more than one characteristic, some of which may be unfavorable. These characteristics we call attributes. Except by extraordinary good luck no one outcome will be best with respect to all attributes. Which of the combinations of attributes is preferable is rarely self-evident …. Nor is there any mechanism ready at hand for reducing all attributes to a common denominator. It is this ubiquitous problem, termed the multiattribute problem, that makes it tough to determine our preferences among outcomes. (1978, p. 117)
Stokey and Zeckhauser’s advice is that analysts should first define a comprehensive and measurable set of attributes. A likely next step would be to predict outcomes-to determine the effects of policy alternatives on each of the attributes. Finally, the outcomes would need to be subjected to some method or methods of comparison; Stokey and Zeckhauser offer five possibilities. Comparisons of alternative policies are easiest, they argue, if the objectives of the policymakers are known in advance, and if it is known how each attribute relates to the objectives.
Zeleny takes a slightly different slant; criteria are “those attributes, objectives, or goals which have been judged relevant in a given decision situation by a particular decision maker” (1982, p. 17), and attributes are “descriptors of objective reality” (p. 15) from which decisionmakers can form objectives. For example, city officials might adopt an air quality objective of reducing auto emissions (an attribute), provided that the cost of doing so (another attribute) does not exceed a certain level.
Whether decisionmakers use only efficiency and equity as criteria for collective action, whether they use other descriptors of outcomes, or whether they use some other system, a third key aspect of collective choice is thus having some means by which outcomes can be evaluated and judged.

1.2 Examples of Collective Choice

One...

Table of contents

  1. Cover
  2. Half Title
  3. Title
  4. Copyright
  5. Dedication
  6. Contents
  7. List of Tables and Figures
  8. Acknowledgments
  9. 1 Introduction
  10. 2 Efficiency and Equity as Reasons for Collective Action
  11. 3 Markets: Will They Be Efficient?
  12. 4 Markets: Will They Be Fair?
  13. 5 Voluntary Solutions to Market Failure
  14. 6 Direct (Participatory) Government
  15. 7 Legislative Government: Part 1
  16. 8 Legislative Government: Part 2
  17. 9 Administrative Government: Part 1
  18. 10 Administrative Government: Part 2
  19. 11 Federated Government
  20. Notes
  21. Bibliography
  22. About the Book and Author
  23. Index