Summary
Chapter 6 summary
- Course
- EKN 310
- Institution
- University Of Pretoria (UP)
Summary of 12 pages for the course EKN 310 at UP (Chapter 6 summary)
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Chapter 6Public choice theory
Introduction:
Investigating social choice rules → methods o transforming individual choice into public
choices → making sure the optimal amount of people at the lowest level of an economy
are being heard → transferring individual needs and information into collective needs to
maximise welfare.
Dictatorial rule → one person (the leader of society) is consulted.
- Can lead to an abuse of power.
- Does not represent the wants and needs of the community.
Voting rules:
- Unanimity → a decision requires 100% support before it is implemented → everyone
in a society must agree on the decision.
- Ordinary majority rule → 50%-plus-one-vote is required for a decision to be
accepted.
- Optimal voting rule → variation of the ordinary majority rule.
Unanimity rule and the Rawlsian experiment:
Unanimity → each individual needs to support the process → becomes a collective
decision of the community.
This is the only voting rule that leads to a Pareto-optimal solution.
Rawlsian experiment:
- Focuses on the process by which individuals reach unanimity.
- Sets the conditions under which “free and rational” individuals will choose certain
principles of justice that govern the “basic structure of society”.
- The “social contract” that emerges is a case of “justice in fairness”.
- Process:
o Individuals pass through a “veil of ignorance” into an “original position”.
▪ Veil of ignorance → people become unaware of their position in
society (they do not know if they are rich or poor)
▪ This makes everyone equally risk averse → makes people rethink
whose needs come first.
• If you do not know if you are the poorest and therefore will
want to maximise the utility function of the lowest person in
society)
-
o Social welfare function depends on the lower of two individual utilities →
𝑊 = 𝑚𝑖𝑛𝑖𝑚𝑢𝑚(𝑈𝑎, 𝑈𝑏) so if 𝑈𝑎 > 𝑈𝑏 then 𝑊 = 𝑈𝑏
▪ Implies → to increase W, Ub must increase.
▪ NOTE! Ua can also increase just as long as Ub does as well.
Notes by Georgia Taylor EKN 310 1
, - Rawlsian welfare function → consistent with a Pareto-based policy → benefiting
both parties involved.
- 𝑊 = 𝑚𝑖𝑛𝑖𝑚𝑢𝑚(𝑈𝑎, 𝑈𝑏) → implies that all parties in the original position adopt a
“maximum strategy” → this strategy gives priority to the party who is in the worst-off
position (has the minimum utility in society).
o Protects them if they were to end up in that position → they will act in the
best interest of the individual with the lowest utility as it may be them.
- Outcome:
o Government should implement policies that aim to benefit the poorest
individual in the society → done regardless of whether it harms or makes
other individuals worse off.
▪ Good example of Bergson criterion for welfare improvement → if
social welfare is increased as a whole, it does not matter if some
people are left worse-off.
o Gives minorities the veto right → the last unpersuaded voter has a decisive
vote.
- Applying to SA:
o Unanimity rule was not followed → everything in the constitution was based
on a process of negotiation (give and take in the overall society) →
compromises between individuals occurred.
- Shortcomings:
o Takes a long time to come to or implement a decision.
▪ Many people have to be consulted → people all have different views
and opinions (have to work to find a solution everyone is happy with)
o One person can deliberately not agree to a decision to delay the
implementation and hold society “hostage”.
- Can lead to logrolling/vote trading → parties forfeit something they want in
exchange for something they want more than that which was forfeited.
Majority voting and the median voter:
Majority voting → most common social choice rule
- Direct democracy (direct democratic dispensation) → 50% plus one vote rule → e.g
1000 people in a community = a party needs 501 votes to win → everyone is given
one vote → the issue, policy or party receiving the most votes at the end of the day
wins (every voter is consulted and must vote on every decision).
- Representative democracy → not everyone sits in parliament and makes decisions
→ voters elect representatives to make decisions on their behalf.
o Less costly to administer than direct democracy.
o Voters interests are represented by → elected politicians, bureaucrats and
private and public groups.
Politicians behave in a way that maximises their election votes → vote maximising
behaviour is an important tool in transforming individual preferences into social
preferences.
Notes by Georgia Taylor EKN 310 2
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