Public Choice Theory | Reasons for Government not being efficient in distributing public goods and services

Public Choice Theory is a very important and popular principle. According to this principle, people's rationality should be promoted. The incentives or benefits that a person receives are based on his or her discretionary choices. The basic premise of public choice theory is the belief that people should be active in activities that benefit them and stay away from activities that are unfavorable.

The behavior of politicians and administrators can be explained and predicted. Politicians and employees are a class that puts more importance on their own interests. Therefore, the best return is obtained only by increasing the role of the market and reducing the role of the government. The bureaucracy is not accountable to anyone, only when the market is contracted does accountability succeed in practice.

Based on these points, the public choice theory is to give the people the right to choose. The NPM has also adopted this principle in line with the principle that the client or citizen should be able to choose public service even in the public sector.

Public choice theory points out reasons why government might be inefficient in providing public goods and services. This is a theory developed from the study of taxation and public spending. It studies the decision-making behavior of voters, politicians and government officials from the viewpoint of economic theory. It can be considered as a bridge between economics and political science.

Public choice theory argues that governments fail to do right. The theory supposes that politicians, bureaucrats, citizens, and states do something totally from a self-interested point of view using their power and the authority of government for their own self ends.

Before the coming of the public choice theory, economists generally used to accept government’s role as “unquestionable controller with perfect information and unlimited power”, a “bureaucrat god”. However, in practice, bureaucrats and politicians are only humans and they often face incentives / motivations that pull them to decisions that produce inefficient outcomes. The basic assumption of the public choice theory is that humans are rational beings that act in a self-interested way. Therefore, public choice theorists say that the economic analysis of the political decision-making process might in fact that tell / reveal certain systematic trends towards inefficient government policies.

Supporters of public choice theory argue that:

• Citizens use political influence to get special benefits called “rents” from government policies (e.g., import licenses or rationed foreign exchange) that limit right of entry to important resources.
• Politicians use government resources to strengthen and maintain positions of power and authority.
• Bureaucrats and public officials use their positions to obtain bribes from rent-seeking citizens and to carry out protected businesses on the side.
• States use their power to seize / capture private property from individuals. The net result is not only a misallocation of resources but also a general reduction in individual freedoms.

The supporters of the public choice theory have developed their arguments on different bases.

1) Voters’ ignorance

The most important opinions of public choice theory are the lack of incentives for voters to monitor government effectively. Public choice promoters point out that voters are largely ignorant of political issues and that this ignorance is rational. Even though the result of an election may be very important, an individual’s vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nothing; the voter has virtually / realistically no chance to determine the outcome of the election. Spending decisions which are made by the politicians following the election is not personally useful for the voter.

Public choice economists point out that the incentive to be ignorant is rare in the private sector. Someone who buys a car naturally wants to be well informed about the car he or she selects. That is because the car buyer’s choice is decisive; he / she pays only for the one chosen. If the choice is wise / sensible, the buyer will benefit; if it is unwise, the buyer will suffer directly. Voting lacks that kind of direct result. Therefore, most voters are largely ignorant about the positions of the people for whom they vote. Except for a few highly publicized / revealed issues, they do not pay a lot of attention to what legislative bodies do; they have little incentive to get the background knowledge and analytic skill needed to understand the issues.

2) Interest groups and lobbying

Even if good government tends to be a pure public good for the mass of voters, there exists various interest groups that have strong motivations for lobbying the government to make inefficient policy-decisions that would benefit them at the cost of the general public. For example, lobbying by the sugar manufactures might result in an inefficient subsidy for the production of sugar, either direct or by protectionist measures. The costs of such inefficient policy fall over all citizens, and therefore unseen to each individual. On the other hand, the benefits are shared by a very small special interest group, who has very strong incentives to continue or keep alive the policy by further lobbying. The large majority of voters will be fully ignorant of the whole affair due to the tendency of rational ignorance. Therefore, it can be expected that numerous special interests groups will be able to successfully lobby for various inefficient policies.

3) Actions of legislators

Public choice economists also examine the actions of legislators. Although legislators are expected to work on the “public interest,” they make decisions on how to use other people’s resources, not their own. Furthermore, these resources must be provided by taxpayers. Politicians may try / seek to spend taxpayers money wisely. There is no direct reward for fighting with powerful interest groups in order to give benefits on a public that is not even conscious of the benefits or of who provided them. Thus, the incentives for good management in the public interest are weak. In contrast, interest groups are organized by people with very strong gains to be made from governmental action. They provide politicians with campaign funds and campaign workers. In return they receive at least the “ear” of the politician and often gain support for their goals. In other words, legislators have the power to tax and to get resources in others by coercive (using force) ways and because voters monitor their behavior poorly, legislators behave in ways that are costly to citizens.

4) The role of bureaucrats

Public choice theorists have also analyzed the role of bureaucrats in government. Their incentives explain why many regulatory agencies appear to be “captured” by special interests. Bureaucrats are captured by the government because they are appointed by the government for particular goal or mission. They depend on the government for their budgets and mostly the people who will benefit from their mission can influence the government body to provide more funds. Thus, interest groups become important to them. Such interrelationships can lead to bureaucrats being captured by interest groups.

With all these points of argument the public choice theory points out the case of government failure-a term similar to the market failure scenarios familiar from the traditional economic theory. The conclusion of the public choice theory is that self-interest guides all individual behavior and the behavior of the government also; governments are inefficient and corrupt because people use government to engage in (carry out) their own agendas. So, free market systems are supposed more efficient and more just. The suggestion, therefore, is that minimal government is the best government.

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Stages of Public Policy | Subject Matter of Public Policy

The public policy can be divided into four stages as follows:

1) Policy Formulation

At first, in the view of people’s demand or realizing the need of that by the government, itself, the government authorities formulate any policy. After that those policy is announced through various media like radio, television and public speech. The basis of formulating a public policy are the country, time, situation, geo-political condition, economic and political level of the people and so on. The principles propounded by various scholars on the formulation of public policy are also used. These principles are found to have given emphasis on the factors such as the need to have capacity to face the problem, need to select appropriate alternative after scrutinizing the possible alternatives of the solution of the problems, need to have appropriate adjustment between available means and ends.

Public policy is formulated with a view to serve majority of people’s interests; protect minority of people, maximum utilization of resources, end conflict between classes and raise living standard of people. Among the different stages of public policy, formulation stage is regarded as the first and foremost stage. The sources of public policy are as follows:

• Voice of people: The voice of people and the constitution of the country, directly or indirectly expressed public desire, slogan, procession, the values directed by socio-religious, cultural, natural conditions, existing tradition are the source of public policy formulation. 
• Political parities: The organized institutions established with different objectives, pressure groups including political parties, opinion of concerned experts, election and so on are also the sources of public policy. 
• International trends: The international trends, the economic, political, social policies of neighboring countries, the policies of international multilateral institutions etc. are also the sources that affect the public policy.

In Nepal as well, legislature, executive, the administrative mechanism of Government of Nepal under delegated power and other constitutional organs basically involve in policy-making. The work of implementation is done by the administrative agencies. A separate committee involving different agencies can do the job of evaluation.

2) Policy Interpretation

There is a possibility that the terms and sentences of the devised policy may denote wrong meaning. To check this, the terms and sentences of the policy statements are interpreted. The policy interpretation may also be called policy analysis. And in policy formulation, different classes, scholars and authorities are involved in policy analysis as well. The public policy is affected by different factors. For example, the political principles always affect the government policy. Since public policy is the result of the relation of groups, group formation also affects policy. Similarly, since there is dominance of elite class in the state, the wish of the elite class may also affect public policy.

3) Policy Implementation

In the third stage after policy analysis, there is policy implementation. To use the matters mentioned in policy statement in actual practice is called implementation. Since policy statement is meaningless without implementation. It is equally necessary to give attention on implementation aspect. If the objective is not realized according to policy, policy powers to be a useless slogan. The implementation is usually done through administrative bodies. The degree of the use of resources, inaction or negligence, possibility of success or failure and so on are looked in the implementation stage itself.

4) Policy Evaluation

In the final stage after implementation of policy is evaluated. Under policy evaluation, the evaluation of whether policy was implemented in reality or not is made. Likewise, a detail scrutiny is also made regarding the desired impact of the policy, the problem in implementation of policy, and the measures to solve problems. The evaluation is made on the involvement of different bodies on the basis of the seriousness, subject matter and so on of the public policy. Such evaluation may be made by the supreme legislature itself or also by other bodies of the government according to the constitutional provision. The auditor general may make evaluation over the executive. Similarly, evaluation can also be made by forming a committee or commission.

Subject Matter of Public Policy

Under subject matter of public policy, the following headings are included.

i) Policy Making Process

The policy making process is included under policy analysis. The policy making process is classified under four heads.

1. Political policy making: The policy is made in accordance of political parties’ commitment during the time of election. The pressure groups such as press, communication, speech section etc. plays a vital role in political policy making. Though, political policy making is formulated by the elected parliament. 
2. Executive policy: The policy which makes implementation of the general policy made by the existing parliament. To implement the policy formulated by the parliament effectively is the responsibility of executive. Furthermore, the executive can make different policies under main policy.
3. Administration policy: The policy made on the basis of administrative suggestions is called administrative policy. The efficient persons in the administration implement the public policies. The administrative persons present their opinion and suggestion in the concerned bodies about policy making, implementation, effects on society and the alternatives. 
4. Technical policy: The policy taken with the works of technical nature is known as technical policy. This policy making and implementation is done by the skilled persons in the technical services.

The political parties, public officials, non-officials and external sources are directly as well as indirectly involved in policy making.

ii) Policy Contents and Specific Issue Areas

The merits and demerits of different provisions made in the law are explained under this heading. These topics are population, employment, environment, water resources, money, banking, public finance etc.

iii) Policy Analysis, Evaluation and Impact Techniques and Methodologies

After the policy making, implementation is made. Then, impact of public policy on people’s lives is evaluated. The policy-makers and the evaluators use specific methods or techniques. These methods and techniques are operational research methods, mathematical and statistical techniques, logical proof etc.

iv) Particular Approaches to Policy Studies

The definite methods related to policy study are studied under this topic. Public study means the study of public choice and the study of public output etc. The topics such as the criteria of determining individual and collective rationality are also studied under it.

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Public policy is useful to politicians and political parties | Utility of public policy in business decision making | Utility to administrative officials

The utility of public policy in different sectors / the utility of public policy in business decision-making / the utility of public policy is different for them which is analyzed as follows:

1) Utility to political parties and politicians

The political parties and politicians are directly or indirectly involve for the development of the nation. The state holders or leaders are the main agents for driving the nation. The knowledge of public policy is importance to the political parties and politicians because they may be in power and opposition. The politicians who are in power holders have to implement policies and modify the existing policies. They have to formulate appropriate policies and analysis to the effects of those policies. If the political parties or politicians are in opposition, they have to get knowledge about the public policy. The opposition leaders should have to suggest and give guidelines to the statesmen. The opposition political parties should also check and warn to the government whether the government goes according to rules and order or not. The knowledge of public policy gives appropriate guidelines to the statesmen and provides appropriate guidelines to the statesmen and provides appropriate ideas to the opposition leaders.

2) Utility to administrative officials

The knowledge of public policy is important to all the administrative officials such as senior level officials and junior officials. The policies are formulated by political leaders and executed by the administrative officials. The administrative officials need comparative knowledge about public policy because they are the means of implementation of the government policies. The existing policies should be effectively implemented according to the development objectives of the government for the development of economy. If the administrative officials do not have good knowledge about public policies, the policies may be used inappropriately and the results will be dissatisfactory.

3) Utility to general people

People are the safeguard to the government and they also make aware of the government. The government conducts various public welfare programs for the people and it promotes and regulates the business sectors. People pay different amount of payments in terms of tax, VAT and other expenses to the government. Various government activities adversely affect to the people. People should also know about the public policy whether they are properly lunched or not, whether the government activities are favor for the public welfare or not. It is also necessary to know the appropriateness of the government policies. Hence, the knowledge of public policy is important to the general people to warn and check the government.

4) Utility of public policy in business decision-making

Public policy affects the life of business like the life of an individual from cradle to grade. For example, a business firm should be registered in registrar’s office according to rule for the establishment (birth). After that license should be received from the concerned department (for example, department of industry) according to rule. Likewise, it should be registered in tax department etc. Similarly, even for the dissolution (death) of a business firm its owners should be according to the rule.

A business firm should make decision taking into consideration the existing political, economic and social environment. The profit-maximization or cost-minimization objective of such firm is remarkably affected by public policy. The business cannot breathe by ignoring public policy. Milton H. Spencer has rightly remarked, “For management, decision-making does not take place in an economic vacuum, but rather in a socio-political environment that must be recognized as a limiting factor in the process of adjusting to uncertainty.”

Since business decisions are affected by social, political environment sometime, it is not enough that decisions and plans being guided by economic theory. It is also necessary to modify in a different way than that.

The government on the one hand, imposes different types of tax and applies rules like grant, patent, antitrust policy, and price control to affect business activities. These policies of the government have great effect on output, pricing, profit rate, investment rate of the firm. From it, it is also obvious that the reaction of the profit-maximizing manager is different from revenue-maximizing manager.

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Meaning of Public Policy | Characteristics of Public Policy | Scope of Public Policy

Public policy may be defined as a proposed course of action of an individual, a group, an institution or a government for the accomplishment of certain objectives in a given situation. Public policy is one that is formulated by some public or governmental authority. Government, which is the representative of the interest of the society as a whole, is the legitimate institution to make

public policy. Whatever policy the government formulates in the form of legislation, regulation, executive orders, or court decisions is public policy. In fact, it is the ‘authoritative base’ of the public policy that distinguishes it from the policy in general.

As pointed by Anderson, Brady and Bullock, “Goal directed or purposeful course of action followed by an actor or set or actors in an attempt to deal with a public problem. This definition focuses on what is done, as distinct from what is intended, and it distinguishes policy from decisions. Public policies are developed by government institutions and officials through the political process (or polities). They are distinct from other kinds of policies because they result from the actions of legitimate authorities in a political system.” However, this definition is narrow in focus as it refers to ‘what is done’ in contrast to ‘what is intended to be done’. The government need not engage in a formal action for public policy to be put into effect.

According to Thomas R. Dye, “Public policy as whatever government chooses to do or not to do.” He argues that public policy must include all actions of the government and not just stated intentions of either government or a government official. He also points out that public policy must include what government chooses not to do, as government inaction with respect to particular issues can have as great as an impact on society as government action. However, this definition can be criticized on the ground that it is too vast as it also includes ‘what government chooses not to do.’

From the above mentioned definitions, we find different views about the definitions of public policy. However, we can summarize that it is the study of a set of government policies of conducting public welfare activities. 

But now the question arises as to what should be included in the scope of public policy. The scope of public policy may be highlighted on the following broad areas:

1. Promotion of social welfare: Policies pertaining to social welfare cover the problems pertaining to food, housing, health, education, social security, social welfare, employment etc. Public policy has a direct bearing with the socialization of the people by providing social equity and guaranteeing social justice, trying to eradicate all social evils, promoting education, setting up social insurance, social security and launching welfaristic schemes for the backwards, women, children and minorities.
2. Economic betterment: Policies relating to economic affairs deal with activities of various sectors of economy such as industry, agriculture, foreign trade and commerce, foreign exchange etc. for ensuring a prosperous and stable economy. In agriculture sector, policy improves the quality and use of seeds, pesticides, fertilizers, agricultural equipment etc. In the industrial sector, it deals with the efficient development of both the small scale and large-scale industries and promotes better employment facilities. It launches various schemes to train and educate the common people in different trades, occupations and skills.
3. Political advancement: For the success of any political system, awareness on the part of the common people is essential. This is more so about a democratic system. In such a kind of system, public policies are framed to encourage common masses to participate actively in the affairs of the government.
4. Administrative efficiency: Public policies help to promote administrative efficiency directly as well as indirectly. This means that there may be policies, which are specifically formulated to and aim at enhancing efficiency of the administration. Thus, they lay down various procedures or guidelines to be followed by the administration in immediate future. Besides this, an enhancement may be a result of some other policies. With officials knowing what exactly they are expected to do and a code of discipline and conduct guiding all performances, all of it naturally adds to the efficiency of the administrative system.
5. Management of financial affairs: The scope of public policy also covers the entire financial management of the government. Thus, it includes the realm of taxation, circulation of money, borrowings, debt structure, foreign exchange and the like.
6. Environmental protection: Public policies are also aimed at creating healthy and clean environment. Environment pollution has become major threat before the world towards the close of the previous century. Hence, protection and maintenance of environment in the modern time has become a major responsibility of the governments. Thus, they are required to lay down policies in regard to water, air and noise pollution, for maintenance of eco-balance, afforestation, soil conservation and the like.
7. Foreign affairs: Public policies are also framed to promote and maintain international relations. Thus, maintenance of international peace, harmony and cooperation are the important areas covered under the scope of public policies. Besides, what sort of relations with other countries of the world are to be maintained are decided through public policies.
8. Defense: A state has also to frame policies in the field of defense as well. Such policies are of paramount significance for its stability and progress depends upon how much effective its policies in the field of defense. These policies include both maintenance of internal order and defending its external boundaries. Since now the problems have almost become worldwide phenomenon, no government can dare to ignore them.
9. Development of infrastructure: The acid test of a country’s development and progress is that how efficient it has developed its infrastructure. All the countries that are considered as developed in modern times have a well-developed infrastructure. On the other hand, main hindrance in the development of Nepal is that we have not been able to create a well-developed infrastructure in the form of transportation, power and electricity, communication network etc. Seen in this background, it obviously becomes imperative for a country to formulate relevant policies in these areas.

Characteristics of Public Policy

The public policy contains the following main characteristics:

1. Purposive (Goal-oriented) actions: Public policy in modern political systems reflects the behavior made on the basis of definite objective. It implies that public policy does not reflect the behavior that occurs suddenly or incidentally. For example, public policy reflects the behavior determined for the purpose of alleviating poverty, but does not reflect the behavior made for the relief of the people sufficient from earthquake all of a sudden.
2. Course of action: Public policy is a plan of action or course of action taken by government authorities. A single decision made by an authority on his discretion cannot be a public policy. Because, since a decision will have to be implemented, there may be a doubt that the decision of a single person will be implemented.
3. Action doing: In public policy, what the government actually does is reflected instead of the intention of the government, since mere intention of the government may not be converted into reality. For example, although there is a law that child labor should not be used; it cannot be a policy if not being implemented.
4. Positive or Negative form: Public policy may be of both positive and negative form. Positive form involves the action taken by the government to influence certain action. For example, the policy that there should be at least a female teacher in each primary school for female upliftment is a positive policy. The negative form involves the government policy on not doing certain work. For example, government’s disinterest in pollution control is a negative policy.
5. Law based on authorities: Public policy is positively based on laws. Similarly, the authorities having authority devise public policy. Consequently, those violating public policy should face penalty and punishment. Such compulsions cannot be found in the policies of private enterprises, since only the government has power to punish those who violate the laws. For example, only government can punish those who drive a car without license.
6. Applied social science: Public policy analysis is assumed to be the subject of applied social science. Policy analysis makes enquiry and uses different methods of reasoning for producing and transforming relevant information with policy, which can be utilized in solving policy problems. United Nations has also dubbed policy-making act as policy science.

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