Question

Suppose the U.S. is considering raising the tariff on Chinese steel. The steel industry is the primary employer in the state of New Colombia. If a Senator from New Colombia votes to impose the tariff, does public interest theory or public choice theory better explain this behavior?

Answer 1

The Public Interest theory was given by A C Piogue, according to this theory whenever there is market failure or inefficiency due to information assymetry, public good product, lack of competition or any other condition this leads to the loss of the public and thence there is need of government intervention in the public interest.

In the above example since US is considering raising the tariff on import of steel from china. It is mentioned that the steel industry is the main employer of the people of New Colombia, and a senator from New Colombia votes to impose the tariff then this situation is in accordance with the Public interest theory as this decision of the Senator will work in favour or interest of the people (public) of New Colombia because with increase in tariff the price of Chinese steel will go up and hence its import will decrease and this will give a chance to the industries in the New Colombia to produce more steel and hence people will get more work and hence more income. This shows the case of government intervention in economy in the interest of public.