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A Theory of the Demand for Public Goods*

Published online by Cambridge University Press:  07 November 2014

Albert Breton
Albert Breton*
Affiliation:
The University of Chicago
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Extract

In their efforts to analyse the behaviour of households and firms, economists have traditionally assumed that each of these units maximizes an index, such as a utility function, a profit function, or a present value function, which is taken to characterize its own interest. However, in analysing government policies these same economists have generally shied away from the maximization-of-own-interest assumption and have instead assumed that governments maximize a social welfare function or the common good; or they have proceeded by developing ad hoc hypotheses for each different problem. This is regrettable, for the returns to the maximization-of-own-interest assumption in the analysis of household and firm behaviour have been impressive, even when due consideration is given to the simplification of reality that is involved. One cannot help suspecting that they might also be high in the analysis of government behaviour.

In consequence, in the present paper, following the lead of Schumpeter and Downs, I suppose that governments are not primarily interested in maximizing a social welfare function, or the common good, or the public interest—whatever these may be—but that instead they seek to maximize their own interest. Specifically, following Downs and Wilson, I assume that governments maximize the probability of their re-election, a probability which is dependent on the policies that are implemented as well as on the degree to which they are implemented. This relationship rests on the view that governments and their electorates are engaged in a sort of exchange in which policies are traded for votes; to maximize the probability of their re-election, governments endeavour to “produce” those policies which can be exchanged for the largest possible quid pro quo, that is, for the largest number of votes. Thus an analysis of government behaviour following a change in the preferences of consumer-voters, for example, would be to a large extent an analysis of changes in government policies. The potential number and variety of these policies, however, is so large that at first glance it seems impossible to proceed with a systematic analysis.

Une theorie de la demande pour les biens publics

Une Theorie de la Demande pour les Biens Publics

La première conclusion de la théorie des biens publics ou des dépenses publiques est qu'il existe un optimum ≪ technocratique ≫ qui est défini par les fonctions d'utilité, de production, et de bien-être, mais cet optimum n'a aucune contre-partie sur le plan des institutions. En remplaçant la fonction de bienêtre par un mécanisme politique basé sur la règle simplifiée que tout gouvernement s'efforce de maximer la probabilité de sa réélection, j'essaie dans cet article de fournir à la théorie des biens publics une contre-partie possible sur le plan des institutions. Et cela en montrant qu'en l'absence des impôts destinés à des buts définis, chaque individu d'une juridiction sera en déséquilibre dans le sens que la quantité de biens publics (fournis en quantité égale à tous) ne sera généralement pas la quantité désirée par chacun des individus, étant donné le montant des impôts qu'ils sont obligés de payer. Supposant que les individus participent aux activités politiques dans une mesure proportionelle à la différence entre leur situation réelle et celle qu'ils souhaiteraient à l'égard des biens publics, l’article démontre que l’on peut définir un équilibre qui reflète moins les valeurs morales des individus que la structure du pouvoir de la juridiction en question. Pour arriver à cette conclusion, le rôle des groupes de pression a été discuté, ainsi que leur influence sur la quantité de biens publics rendus disponibles.

Type
Research Article
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 32 , Issue 4 , November 1966 , pp. 455 - 467
Copyright
Copyright © Canadian Political Science Association 1966

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Footnotes

*

Except for a few minor changes, this paper was read in its present form to the Thirty-Eighth Annual Meeting of the Canadian Political Science Association in Sherbrooke on June 10, 1966. I wish to thank Harry G. Johnson who caught an important error in an earlier draft of the paper and suggested how it could be corrected. I also wish to thank J. Stefan Dupré, Milton Moore, and Anthony D. Scott for their helpful comments. I alone, however, carry the responsiblity for any remaining errors and shortcomings.

References

1 Schumpeter, J. A., Capitalism, Socialism and Democracy (New York, 1950), 282.Google Scholar Downs, A., An Economic Theory of Democracy (New York, 1957).Google Scholar

2 Wilson, J. Q., “The Economy of Patronage,” Journal of Political Economy (08 1961), 369–80.CrossRefGoogle Scholar

3 “A Theoretical Analysis of the Demand for a Class of Discriminatory Subsidies” (mimeo., 1965).

4 Breton, A. and Breton, R., “A Socio-Economic Theory of Social Movements” (typescript, 1966).Google Scholar

5 I have examined one of these classes in more detail in “The Economics of Nationalism,” Journal of Political Economy (08 1964)Google Scholar; see also Johnson, H. G., “A Theoretical Model of Economic Nationalism in New and Developing States,” Political Science Quarterly (06 1965).Google Scholar

6 Lindahl, E., “Just Taxation—A Positive Solution,” in Musgrave, R. and Peacock, A., Classics in the Theory of Public Finance (New York, 1958), 168–176.CrossRefGoogle Scholar Bowen, H. R., Toward Social Economy (New York, 1948), chap. XVIII.Google Scholar Samuelson, P. A., “The Pure Theory of Public Expenditure,” Review of Economics and Statistics (11 1954)Google Scholar; and “Diagrammatic Exposition of a Theory of Public Expenditure,” ibid. (Nov. 1955). Musgrave, R. A., The Theory of Public Finance (New York, 1959).Google Scholar

7 Samuelson, , “Pure Theory of Public Expenditure,” 387.Google Scholar

8 Margolis, J., “A Comment on the Pure Theory of Public Expenditure,” Review of Economics and Statistics (11 1955), 347–49.Google Scholar G. Colm, “Comments on Samuelson's Theory of Public Finance,” ibid. (Nov. 1956), 408–12.

9 In “A Theory of Government Grants,” this Journal (05 1965)Google Scholar, I tried to develop a framework which would mitigate the impact of this criticism.

10 Shoup, C., “Standards for Distributing a Free Government Service: Crime Prevention,” Public Finance, XIX, 4 (1964), 383–92.Google Scholar

11 “The Economics of Nationalism,” 377.

12 They may, for example, be pursuing economic self-sufficiency or autarky.

13 It was correctly pointed out to me that the concept of co-operation has a much broader meaning than the one I have given it in the present context. Because I cannot find a better word to replace it, I have adhered to that term, but the reader should keep in mind that in this paper it only means that individuals reveal their true preferences for public goods.

14 The entire discussion of the paper is carried on the assumption that non-private goods other than pure public goods do not exist. This is not as big a simplification as may appear at first, since the size of the jurisdiction to which the good is supplied is left undefined. In fact the argument is valid for pure local goods, pure provincial goods, pure national goods, etc. See my “A Theory of Government Grants.”

15 It should be stressed that one cannot assume only one individual, or only one community or any situation in which there is only one set of indifference curves, because then the properties derived from the fact that the benefits of public goods are available to all cannot exist. Mathematically, it is then impossible to calculate sums of marginal rates of substitution to equate with marginal rates of transformation because the individuals over which the sums should be taken do not exist!

16 Samuelson, , “Diagrammatic Exposition of a Theory of Public Expenditure,” 351–3.Google Scholar

17 Samuelson, , “The Pure Theory of Public Expenditure,” 387.Google Scholar

18 This statement is true only if everyone in the jurisdiction derive positive utility from any given “public good.” The statement would have to be modified if a given policy was a public good for some and a public bad for others. I disregard this case throughout the present discussion.

19 This term is, I think, due to Alan Williams. See “The Optimal Provision of Public Goods in a System of Local Governments,” Journal of Political Economy (02 1966), 23.Google Scholar It is used to indicate that public goods are not priced in markets.

20 Because it is not essential to my argument and because it has been extensively discussed in the literature, I neglect the case of a world of certainty and competition. See Musgrave, R. A., “The Voluntary Exchange Theory of Public Economy,” Quarterly Journal of Economics (02 1939), 213–37CrossRefGoogle Scholar; Head, J. G., “Lindahl's Theory of the Budget,” Finansarchiv (10 1964), 421–54.Google Scholar The case of uncertainty and co-operation, which is relevant to the analysis of the behavior of small groups, still has to be examined. To do so here would, however, take me too far away from the purposes of this paper. See Buchanan, J. M., “An Economic Theory of Clubs,” Economica (02 1965), 1–14 Google Scholar, for an effort in that direction.

21 Simons, H. C., Economic Policy for a Free Society (Chicago, 1948).Google Scholar Stigler, G. J., “The Tenable Range of Functions of Local Government,” Joint Economic Committee, Federal Expenditure Policy for Economic Growth and Stability (Washington, DC, 1957), 213–19.Google Scholar Tiebout, C. M., “A Pure Theory of Local Expenditure,” Journal of Political Economy (10 1956), 416–24.CrossRefGoogle Scholar

22 For an empirical study supporting the hypothesis that voting reflects the preferences of voters, see Key, V. O., The Responsible Electorate (Cambridge, Mass., 1966).CrossRefGoogle Scholar

23 See Banfield, E. C., Political Influence (New York, 1961).Google Scholar

24 For a distinction between political and cultural nationalism, see my “Economics of Nationalism,” 376.