CHAPTER

8
Public Sector Demand

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

The Median Voter Model

Concludes

that a majority rule voting

system will select the outcome preferred
by the median voter
Important assumptions:
Voters

can rank alternatives along a onedimensional continuum

Voters have single-peaked preferences

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Median Voter Model:

Committee & Referendum

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Median Voter in a

Representative Democracy
Voters

generally do not directly vote on

issues in a representative democracy
Voters choose the representative that has
views that are closest to their own

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Median Voter in a

Representative Democracy
Two

representative model
Winning candidate needs to get the
median voter to win
Political competition results in both
representatives targeting the median
voter

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Median Voter in a

Representative Democracy

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Decisive Median Voter

As

long as preference assumptions hold,

model can be extended to any number of
voters
Can be represented in a density function
with positions from left to right
More voters near the median voter

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Decisive Median Voter

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

8-8

Application: Extreme
Candidates Cannot Win Election

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Application: Third Parties

Cannot Persist

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Cyclical Majority

If

preference assumptions are violated,

median voters preferred outcome might
not be selected by majority rule
Could produce a cyclical majority
No

single outcome can defeat all others by

majority rule

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

8-11

Violation of Single Peaked

Preferences

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Cycles and Political

Institutions
If

preferences are cyclical, political

institutions can effect elections
Example: Ford vs. Carter
Primary produces a unique winner, even
with cyclical preferences
Political institutions help produce stable
outcomes
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

8-13

Information and Incentives

The

political marketplace

Most

Voters

voters do not have direct input

are rationally ignorant

Individual

vote is unlikely to affect the

outcome
Voters have little incentive to become
informed

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Special Interests
Special

interests have an incentive to

become informed because of
concentrated benefits
Example: dairy farmers
Politicians have an incentive to favor
special interests over the public interest

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Information and Incentives

Special

interests and rational ignorance

combine against the public interest skew
median voter demand
Skew

median voter demand toward special

interest
Tendency to support short-sighted policies

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Public Sector Demand in

Theory and the Real World
Special

interests and rational ignorance

lead to government failure
Government failure leads to misallocation
of resources
Median voter model, like perfect
competition, helps provide insight into
the ideal system
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Economic Efficiency and the

Median Voter
Even

if the median voter model holds,

majority rule voting is not likely to
allocate resources efficiently
The median voters equilibrium is
efficient when the median voters share
of total demand equals median voters
share of total cost
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Economic Efficiency and the

Median Voter

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