Public Choice, Social Choice, and Political strongEconomystrong.pdfVIP

Public Choice, Social Choice, and Political Economy Dennis C. Mueller University of Vienna Prior to World War II, economists had by and large viewed the state as an institution for correcting market failures and redistributing income. The state was an institution to which advice was proffered – how should taxes be levied, how should externalities be corrected, what public goods should be supplied. Shortly after the war ended, however, economists began to study the process by which the state makes decisions. In a democracy, it was assumed that the state should make decisions that improve the welfare of its citizens. To do this, the state must determine what the citizens want. The democratic institutions of the state were supposed to provide the information required for this task. The broad field of economics can be divided into positive theories, which seek to explain how markets function, and how firms and consumers behave, and theories about the normative properties of market processes – are there equilibria, are the outcomes Pareto optimal? The new theories concerning the democratic state also quickly separated into positive and normative inquiries. One of the more celebrated, normative contributions to this early literature was Kenneth Arrow’s (1951) demonstration that no process for aggregating individual preferences – be it the market or the ballot box – can produce a social ordering that satisfies five, seemingly reasonable conditions. Kenneth May (1952) responded by showing that the simple majority rule did satisfy four normative conditions, although only for binary choices. With these two early and important contributions, a huge literature was launched that analyzes the normative properties of preference aggregation procedures. The first contributions to the positive side of the literature were Duncan Black’s