Question

1. Compare and contrast the "idealized" political science view of the state with that of the public choice economist.

2. What is wrong with the democracy in the efficient provision of public goods?

3. Why does the assumption of rational utility maximization lead to failure in the public sector? Why doesn't this happen in the private sector?

Answer 1

1. Compare and contrast the "idealized" political science view of the state with that of the public choice economist

In political science, state is seen as inherently a political organization that usually has a centralized authority that is sovereign or is governed by some other sovereign higher power. It is an instrument of governance and as is envisaged as an entity in itself; that possesses the ultimate right to govern over the situation and the controlled geographic area. State have various definitions and features in political science itself, however it is idealized as an entity in itself and usually viewed in a very guarded fashion. Law and rule of the subjects concerns most of the state functions in the political science. The state as an organization is studied in less.

On the other hand public choice theory, that deals with applying economic theories to political theories; view state as the collection of individuals who, alike any private organization calculates cost and benefits before acting. And in this case self-interest of the state as an agency that also has its objectives and the individuals involved too have incentives and punishments for non-compliance.

2. What is wrong with the democracy in the efficient provision of public goods?

Democracy is a system in which the members of state or in this case government are elected representatives from the population. Hence to be elected it is required to prove to be efficient in satisfying the mandates of the selecting citizen. Public goods are provided to the citizens, directed towards benefit of the population rather than generating profits or sales. Due to not being able to generate profit to satisfy individual needs for production of the public goods by private organizations, most of the responsibility of provision of public goods rests with the state. The state being elected in a democracy is also responsible to serve the needs of the selecting population. Public goods are non-excludable and non-rival; thus the use cannot be restricted and the use does not create hindrance for use of others. In case of democracy, voting paradox show that it is difficult to find a unique solution to a problem of voting involving simultaneous decision making of the players. Hence firstly this poses a problem in democracy where the majority is served with their agendas; however the minority in electoral process are left out. The can lead to the problem of missing markets. Secondly in democracy with equal rights to all, free rider problem is a problem for provision of public goods. Thus in democracy too, it is difficult to efficiently proved public goods. Efficiency in public goods can be achieved only by overcoming the problems of missing markets, free riding and with inclusion of all in policies.

3. Why does the assumption of rational utility maximization lead to failure in the public sector? Why doesn't this happen in the private sector?

A rational choice of an individual is described as the choice that is complete and transitive. That is, if an individual is presented with alternatives to choose, the rational individual will be able to rank her preferences, like A is preferred to B and B is preferred to C; this is called completeness. It is transitive in the choice of A over B and B over C means, A is preferred to C. Hence with these two conditions fulfilled a choice can be termed as rational. However, voting paradox shows a situation where individual choice becomes irrational even under ordinary situation.

On the other hand utility maximization refers to the situation where the utility of an individual is maximized from consumption of a bundle of commodities. The maximization can be in real terms measured by ‘utils’ following the cardinal approach of by ranking the alternatives and maximizing the consumption of most preferred bundle. Both cardinal approach and ordinal approach to utility maximization requires an ordering of the alternatives based on some objective function; say utility maximization through profit or income. The social welfare function by Bergson did try to incorporate the utilities of all the individuals as an aggregation of welfare measure. However, public sector organizations working towards public benefit rather than profit or sale maximization would fail to qualify the rational utility maximization.

However for a private organization the unique profit (utility of a production for a private producer) maximization function can exist and the decision of choice between the alternative is by an individual; rather than a state that needs to consider plethora of factors before operations.

Also the public good provision would violate the unique individual utility function for a consumer; whereby the consumption in case of public good would mean a joint or collective consumption hence the utility function to be maximized to be rational must incorporate then the functions of all the consumers of the joint or collective consumption process.