Introduction

What has come to be known as public choice rests on the basic intuition - initially sketched by Schumpeter - that the methodology of neoclassical economics can be used to analyze decisions and adjustments of participants in the public sector, and in other areas where decisions and adjustments are collective, just as it can in the market sector of modern economies. The working out of this intuition, one imagines, would narrow the awesome gap that separates public- and private-sector economics and eventually produce a unified body of analytical and testable propositions. Some progress in that direction has no doubt been achieved in the last 40 years, but the gap is still very much a reality.

One of the central tenets of neoclassical economic methodology is that the forces that operate to determine any outcome can be classified into two separate, but interacting, sets usually labeled demand and supply. In this book, we focus solely on supply questions by concentrating on decision making and adjustments in governmental bureaucracies and business corporations. We are therefore assuming that the demand side in the private and public sectors can be modeled separately and that those demand models will be consistent with the suggested theory of supply. By the latter, we mean that it will be possible to formulate a theory of the interaction of the two, because the ultimate test of the validity of any theories of supply and demand is how they combine to generate desired outcomes.