Foundations of Public Choice: A Primer

Public Choice was born of a dissatisfaction with the lazy habit of identifying a “market failure” and then dispatching a unified, benevolent, and competent “government” to correct it. All systems, in the Public Choice view, must “see with two I’s.” Those two I’s are information and incentives. Different rules affect what information actors possess, and what incentives shape their choices. The same set of people, with the same goals and preferences, may reach dramatically different outcomes under different systems of rules.

Consequently, Public Choice is both more modest and more hopeful than its caricatures. It is modest because it retains for all human organizational forms a realistic conception of the costs of collective action, information asymmetry, bargaining problems, agency slippage and enforcement. It is hopeful because it treats politics, at least at the constitutional level, as a potentially rich system of cooperation. People will try to find ways to agree on rules that in turn foster mutually beneficial “exchange” that markets alone cannot achieve.

Gordon Tullock’s entry for “Public Choice” in The New Palgrave Dictionary of Economics captures the familiar, but incomplete, version of the approach:

• By assuming that voters, politicians and bureaucrats are mainly self-interested, public choice uses economic tools to deal with the traditional problems of political science. Its findings revolve around the effects of voter ignorance, agenda control and the incentives facing bureaucrats in sacrificing the public interest to special interests. The design of improved governmental methods based on the positive information about how governments actually function has been an important part of public choice. Constitutional reforms advocated variously by public choice thinkers include direct voting, proportional representation, bicameral legislatures, reinforced majorities, competition between government departments, and contracting out government activities. (Tullock, 2008; abstract)

That definition is useful because it emphasizes incentives, information, and rules. But if Public Choice is reduced to the observation that political actors have private interests, it becomes an empty cynicism. James M. Buchanan’s project was larger. He wanted to understand how political order itself could be justified and improved if we start with ordinary people rather than with angels, philosopher-kings, or “the state” as a fictitious person.

A good way to introduce Public Choice to non-specialists is to begin with Buchanan’s four essentials. The first is Buchanan’s methodological prescription for institutional metascience. Then the second, third, and fourth are the axiomatic pillars of Public Choice.

• Relatively absolute absolutes
• Methodological individualism
• Behavioral symmetry
• Politics as exchange

These four essentials cohere; separate them, and you no longer have Public Choice. Methodological individualism tells us where explanation must begin. Behavioral symmetry tells us not to change our assumptions about human motivation merely because we have moved from the marketplace to the legislature. Relatively absolute absolutes tell us why rules are both necessary and contestable. Politics as exchange gives the enterprise its positive purpose: the search for rule systems under which people can secure mutual gains from collective action.

It is worth describing each in greater detail.

The phrase “relatively absolute absolutes” sounds like a joke, but it captures a deep feature of Buchanan’s scientific approach to constitutional political economy. Public Choice is sometimes described as if it were merely a technical extension of economics to politics. Buchanan’s own project was also a theory of rules: how rules arise, how they coordinate behavior, how they constrain predation, and how they can be criticized without imagining that the critic stands outside all traditions and institutions.

The core idea is a middle position between moral absolutism and moral relativism. In ordinary life, many rules have to be treated as (relatively) fixed. We cannot renegotiate the meaning of property, promise, legal procedure, or personal security every morning before breakfast. Stable conventions make cooperation possible because they allow people to form expectations. A society in which every rule is always up for grabs is not a society of free inquiry; it is a society of intolerable transaction costs.

At the same time, the rules are only relatively absolute. They are not sacred. They can be examined, criticized, reinterpreted, and sometimes replaced. Buchanan took this attitude from Frank Knight, who resisted both dogmatism and nihilism. Knight’s formulation was characteristically blunt:

• The right principle is to respect all the principles, take them fully into account, and then use good judgment as to how far to follow one or another in the case in hand. All principles are false, because all are true-in a sense and to a degree; hence, none is true in a sense and to a degree which would deny to others a similarly qualified truth. (Knight, 1951, p. 6)

For lay readers, the point can be put this way: rules deserve a presumption, not worship. The burden of proof normally lies with those who would overthrow established rules, because rules embody information, expectations, and compromises that may not be obvious to the reformer. But the presumption is rebuttable. Bad rules can be bad precisely because they organize expectations around injustice, inefficiency, or privilege.

This is why Public Choice is neither simple conservatism nor simple progressivism. The conservative temptation is to treat inherited institutions as if survival proves justice. The progressive temptation is to treat society as if institutions can be remade at will by experts who know the public good. Buchanan’s relatively absolute absolutes reject both temptations. We need rules stable enough to guide life, and we need a constitutional space in which those rules can be challenged.

This attitude also clarifies the relation between Public Choice and constitutionalism. Constitutional rules are not ordinary policies. They are rules about how ordinary policies are to be made. We should be more cautious about changing them, because they structure the bargaining process itself. But they are still human rules, not tablets from Sinai. The relevant question is whether they help citizens—separate persons with separate projects— live together under rules they can plausibly endorse.

Methodological individualism is the requirement that social phenomena be explained as the result of the actions, expectations, plans, and conflicts of individual persons. It does not deny that persons are formed by families, churches, classes, nations, professions, or other communities. It does not say that people care only about themselves. It says that, for purposes of explanation, we must specify the persons whose choices produce the outcome we are trying to understand.

A lay example is the sentence, “The government decided to raise taxes.” That sentence is convenient, but it is not an explanation. Which elected officials introduced the bill? Which committee chairs allowed it to advance? Which members voted for it, and why? Which agencies will implement it? Which taxpayers will comply, evade, lobby for exemptions, or shift costs to others? Public Choice insists on unpacking the collective noun into the institutional choices of actual people.

Max Weber made the point with unusual clarity:

• [It may] be convenient or even indispensable to treat social collectivities, such as states, associations, business corporations, as if they were individual persons. Thus they may be treated as the bearers of rights and duties or as the performers of legally significant actions. But for the subjective understanding of action in sociology these collectivities must be treated as solely the resultants and context of the particular acts of individual persons, since an individual alone is the subjective bearer of meaningful oriented action…. It is a tremendous misunderstanding to think that an ‘individualistic’ method should involve what is in any conceivable sense an individualistic system of values. (Weber, 1922; p. 13)

Buchanan’s use of methodological individualism in constitutional economics was both analytical and moral. Analytically, collective outcomes emerge from the choices of individuals operating under rules. Morally, if political order is to be justified by consent, the relevant unit of consent must be the person, not “society” imagined as a mind above persons. Buchanan summarized the point by saying that the autonomous individual is the sine qua non of constitutional inquiry: without persons capable of assessing alternatives, there is no meaningful sense in which a rule can be said to be agreed to.

This is why methodological individualism is so important for collective action problems. Consider David Hume’s example of neighbors trying to drain a common meadow:

• Two neighbours may agree to drain a meadow, which they possess in common; because ‘tis easy for them to know each other’s mind; and each must perceive, that the immediate consequence of his failing in his part, is, the abandoning the whole project. But ‘tis very difficult, and indeed impossible, that a thousand persons shou’d agree in any such action; it being difficult for them to concert so complicated a design, and still more difficult for them to execute it; while each seeks a pretext to free himself of the trouble and expence, and wou’d lay the whole burden on others. (Hume, 1978, p. 538)

For the group, draining the meadow may be rational and mutually beneficial. For each person considered separately, free riding may be tempting. A theory that begins with “the group wants the meadow drained” skips the very problem that requires explanation. Public Choice begins instead with the separate calculations of the individuals and then asks what rules, sanctions, norms, contracts, clubs, or political institutions might make cooperation possible.

This method also prevents a common fallacy in policy analysis. It is not enough to say that “we” would be better off if pollution were reduced, if public goods were supplied, or if a bureaucracy served the public interest. The Public Choice question is: what incentives and information will face the persons who must make, implement, finance, and obey the rule? Without that individual-level account, the analysis is little more than a wish.

Behavioral symmetry is the Public Choice insistence that the analyst should use the same basic model of human motivation in public and private settings. On the day after the announcement of Buchanan’s 1986 Nobel Prize, Alistair Cooke said on BBC’s “Letter from America” that Public Choice rests on “the homely but important observation that politicians are, after all, no different than the rest of us.” There is truth in that statement, but it is easy to misunderstand.

The point is not that everyone is “only” self-interested. People in markets often act generously, honorably, and publicly. Consumers may pay more for fair trade coffee; entrepreneurs may care about reputation and community; workers may take pride in their craft. Likewise, public officials may have real public purposes. The claim is not that motives are base. The claim is that motives are mixed, and that they remain mixed in both markets and politics.

The older “public interest” approach often assumed a split personality: market actors were self-interested and poorly informed, while public officials were benevolent and well-informed. Knut Wicksell objected to this asymmetry long before Public Choice became a named field:

• … [N]either the executive nor the legislative body, and even less the deciding majority in the latter, are in reality … what the ruling theory tells us they should be. They are not pure organs of the community with no thought other than to promote the common weal. … [M]embers of the representative body are, in the overwhelming majority of cases, precisely as interested in the general welfare as are their constituents, neither more nor less. (Wicksell, 1958; pp. 86–87)

Behavioral symmetry is therefore better understood as motivational symmetry. A self-interested consumer does not become an angel when she enters the voting booth. A rent-seeking businessman does not become omniscient if he is appointed to a regulatory commission. But the reverse is also true: markets do not automatically make people selfish, and public office does not automatically corrupt everyone who enters it.

The real analytical payoff is comparative. If voters, bureaucrats, and politicians behave differently from consumers, managers, and entrepreneurs, the explanation should be sought in the rules of the setting. The voter’s choice is usually not decisive; the consumer’s purchase usually is. The bureaucrat may have weak profit-and-loss feedback but strong incentives to preserve budget, staff, discretion, and jurisdiction. The legislator may care about reelection, party reputation, ideology, committee power, and the demands of organized groups. None of these differences requires the assumption that public actors have a separate moral psychology. The differences come from institutions.

This point disciplines both critics and defenders of government. It disciplines critics because Public Choice does not permit the lazy view that politics is always wicked and markets always virtuous. It disciplines defenders because one cannot justify state action merely by pointing to market failure. A serious comparison must also examine government failure: information problems, agenda control, agency costs, fiscal illusion, regulatory capture, rent seeking, and voter ignorance.

Buchanan and Geoffrey Brennan put the burden of proof in the right place: if one wants to claim that people become “statesmen” in politics but “possessive profit seekers” in markets, one needs evidence. Otherwise, the analysis has assumed the result it was meant to prove.

Politics as exchange is the most neglected of the foundational axioms, but it was the centerpiece of James Buchanan’s understanding of the nature of politics. Insisting that there are potential gains from cooperation prevents Public Choice from collapsing into cynicism. If Public Choice were only the relatively absolute absolutes, plus methodological individualism and behavioral symmetry, we would have only “politics without romance.” That view suggests that political actors are ordinary people pursuing interests under constraints. That is true, but incomplete. It does not explain why political order can be legitimate, or why we should care about improving rules rather than merely exposing hypocrisy. Without “politics as exchange,” the only prescription would be to eliminate the state.

But Buchanan stressed that the “politics without romance” view was not enough. In a conversation with Geoffrey Brennan, Buchanan said that if Public Choice begins and ends with the claim that politicians and bureaucrats are simply like the rest of us, then “you have a very empty type of theory.” What must be added to “politics without romance” is the thought that, “at some ultimate level,” people enter politics for mutual gain: organized government must be capable of producing shared benefits, or there is no hope of justifying political coercion.

The market analogy is helpful but limited. In a market exchange, two parties agree to trade because each expects to be better off. If the exchange is voluntary and rights are well defined, the trade itself is evidence of mutual benefit. Political exchange is more complicated because the goods are often public, the parties are numerous, and enforcement is collective. National defense, clean air, roads, courts, disease control, and constitutional rules cannot always be supplied through bilateral bargaining.

That is why politics as exchange is not the claim that ‘paying taxes is just like buying groceries’. Taxes are backed by force, and regulations are imposed even on those who object. Randall Holcombe’s useful warning is that coercive activity cannot itself be described as exchange merely because the government uses the revenue to provide services. Exchange is voluntary; coercion is not. Public Choice must not blur that difference.

Buchanan’s move is subtler. He asks us to distinguish the constitutional level from ordinary politics. At the constitutional level, people may agree in advance to rules that will later authorize coercion, because they understand that without enforcement, the cooperative surplus will disappear. The free-rider problem that prevents Hume’s thousand neighbors from draining the meadow can be solved only if the parties can create rules that bind them. Once those rules exist, particular acts of enforcement may be coercive, but the coercion is justified, if it is justified at all, by the prior agreement to the rules.

This is why hypothetical agreement matters, even though it is not the same as actual consent. Actual unanimity is rare in large societies. Buchanan’s constitutional argument asks a different question: what rules could persons, uncertain about their own future position, regard as mutually advantageous? That question does not magically convert coercion into consent. It gives us a standard for judging coercion. Coercion that could not plausibly be justified to those subject to it is suspect; coercion embedded in general rules that all could reasonably endorse has a different moral status.

Politics as exchange also has a positive, not merely normative, meaning. Legislators exchange votes. Committees exchange agenda access. Interest groups exchange political support for policy favors. Agencies exchange cooperation with legislative overseers for budget, discretion, or protection. Some of these exchanges are productive; others are predatory. The Public Choice point is not that all political exchange is good. The point is that political outcomes are often produced through bargains, and the structure of those bargains depends on rules.

The reason politics as exchange is neglected may be that it is easy to confuse two quite different claims. The first is the constitutional claim: politics can be a means of securing mutual gains that would otherwise be lost to free riding and transaction costs. The second is the ordinary political claim: much day-to-day policymaking is a marketplace in which relatively organized participants bargain over rules, transfers, exemptions, and privileges. Public Choice needs both claims.

Transaction costs explain the difference. In a world with zero transaction costs, anyone affected by a policy could bargain with everyone else, and resources would tend to move toward their highest-valued uses. In politics, transaction costs are enormous. Millions of citizens cannot easily assemble, monitor proposals, evaluate tradeoffs, bargain over details, and enforce commitments. Political exchange is therefore not equally available to everyone.

The low-transaction-cost participants are legislators, party leaders, committee chairs, agency heads, repeat-player lobbyists, and organized interests. They know one another, interact repeatedly, they monitor compliance, and can punish defection. For them, politics is often exchange in a quite literal sense. Vote trading, logrolling, regulatory bargaining, and coalition formation are all ways of assembling support for policies that might not command majority enthusiasm if considered one at a time.

The high-transaction-cost participants are ordinary citizens. Voters may be numerous, dispersed, busy, and rationally ignorant about most policy details. Each citizen has little reason to master the tax code, the tariff schedule, or the details of an agricultural subsidy if his or her individual influence on the outcome is effectively zero. This does not make citizens stupid; it makes them people responding to incentives. When the cost of becoming informed exceeds the expected effect of one’s action, ignorance is not surprising.

This asymmetry explains the familiar pattern of concentrated benefits and dispersed costs. A small industry, profession, or locality may gain a great deal from a tariff, license, subsidy, or regulatory barrier. The costs are spread over millions of consumers or taxpayers, each of whom loses too little to justify organizing an opposition. The resulting policy may be bad for the public as a whole while still being perfectly intelligible as a political exchange among low-transaction-cost participants.

The point is not that democracy is fake. It is that democratic procedures do not automatically make all affected citizens parties to the bargain. Elections provide accountability, but they are blunt instruments. Voters can vote, join groups, donate, volunteer, and protest. But in many ordinary policy domains they are not the effective bargainers. They are the audience, the principals in theory, and the residual claimants in the abstract, but they are usually excluded from the detailed exchange that produces policy.

That observation gives politics as exchange its bite. If political exchange is confined to the well-organized few, then policy will tend to reflect the priorities of those few. If constitutional rules can lower the costs of broad participation, increase transparency, limit special privileges, require generality, or make predatory bargains harder to enforce, then political exchange may move closer to mutual benefit. The task of constitutional political economy is to compare rule systems by asking which ones make cooperative gains available while constraining exploitative bargains.

This is also where Buchanan’s four essentials converge. Methodological individualism identifies the actors who face different costs and incentives. Behavioral symmetry prevents us from assuming that the organized few are uniquely wicked or that public officials are uniquely benevolent. Relatively absolute absolutes remind us that stable rules are necessary for bargaining, but not immune from reform. Politics as exchange supplies the standard: do the rules make it possible for persons to live under institutions that they can understand as mutually advantageous?

Public Choice begins by refuting romance. It rejects the comforting idea that the state can be modeled as a benevolent despot, armed with perfect information and motivated only by the public good. It also rejects the mirror-image romance that markets are perfect, and politics is simply a nuisance. The comparative question is harder: what happens when ordinary people, with mixed motives and limited information, act under different rules?

Buchanan’s essentials answer that question by giving Public Choice both a method and a purpose. Methodological individualism says that collective outcomes must be traced to persons and the rules under which they act. Behavioral symmetry says that the same human beings inhabit public and private life. Relatively absolute absolutes say that rules must be stable enough to make cooperation possible, yet open enough to be criticized and improved. Politics as exchange says that political order can be justified only if it can be understood as a system for securing mutual gains among persons who would otherwise face conflict, externalities, and collective action failures.

The most common mistake about Public Choice is to hear only the skeptical half: politicians are self-interested; voters are ignorant; bureaucrats seek budgets; interest groups seek rents. Those claims matter, but they are not the whole theory. The deeper Public Choice insight is that rules can sometimes transform private purposes into public benefits, and can sometimes do the opposite. The analyst’s task is to tell the difference.

That is why politics as exchange deserves pride of place. Without it, Public Choice becomes a catalogue of political failure. With it, Public Choice becomes a constitutional science of cooperation under constraints: sober about incentives, serious about consent, and attentive to the institutional conditions under which people can exchange, agree, and live together under rules.