Wait a minute: is the government self-interested or isn't it?


Are politicians and voters public-spirited or selfish like firms in the marketplace? Sam argued that lots of voting and legislating behaviour was 'sociotropic', and that it couldn't be squeezed into a model where actors maximised their narrow self-interest. But Sam's argument is best taken on the libertarian margin: public choice theory is probably less true than the average libertarian economist thinks; but it's probably still more true than the average person thinks. Five new papers illustrate this nicely. Firstly, a finding that goes against public choice. Public choice says governments do what's likely to maximise their own power/votes/income. The alternative is that they do what they honestly think is good for the country/citizenry as a whole. According to an experiment from Thad Kousser & Daniel M. Butler legislators play public goods 'games' (imagine game theory scenarios where you get real payouts for the outcomes you achieve) more co-operatively than undergraduates. I suppose playing less selfishly than 19-year-old students is hardly a huge achievement but it's something.

Now here's four supporting the public choice model. Jonathan Brogaard, Matthew Denes & Ran Duchin, all at the University of Washington, find that connected firms get much better government contracts. Specifically, "connected firms are 10% more likely to win a contract. Connected firms receive larger contracts, with longer durations and weaker incentive structures". Pretty nice for them, but not so nice for us, and definitely something predicted by public choice and crony capitalism.

In "A Structural Model of Electoral Accountability" by S. Borağan Aruoba, Allan Drazen & Razvan Vlaicu we discover that term limits make governance worse by leaving top politicians nothing to exert effort for after they've got as far as they conceivably can. Looking at US state governors 1982-2012, they find that first-term politicians do considerably less when they can't win a second term. They say that a two-term regime improves voter welfare by 4.2% over a one-term regime, and a three-term system could be even better.

This one's probably obvious: Joshua L. Kalla and David E. Broockman show through an experiment that donors get much more access to their congressmen than non-donors.

The experiment focuses on whether contributions facilitate access to influential policy makers. In the experiment, a political organization attempted to schedule meetings between 191 congressional offices and the organization's members in their districts who were campaign donors. However, the organization randomly assigned whether it revealed to congressional offices that prospective attendees had contributed to campaigns. When informed prospective attendees were political donors, senior policy makers made themselves available between three and four times more often. T

Finally, perhaps the most damning paper shows that perceptions about a revolving door between politics and business are borne out in fact. "Is the Revolving Door of Washington a Back Door to Excess Corporate Returns?" by Mehmet İhsan Canayaz, Jose Vicente Martinez & Han N. Ozsoylev finds that "firms where current public officials become future employees outperform other firms by a statistically significant 7.43% per year in terms of four-factor alpha". You might just think that government workers are more attracted to better firms, but show that "such financial gains are significantly reduced during periods in which presidential executive orders restrict revolving door movement", ruling this out. However, it still seems possible to me that government workers are talented and know the system and that this improves the firms' returns in 'legitimate' ways.

I still think libertarian economists might have run a bit far with the public choice model, but this is a nice reminder that for all that it does bear substantial fruit.