ECO 481:
Public Choice Theory
Week 10:
Government Exploitation
& Schools
Dr. Dennis Foster
Exploitation
• “Purposive political or rent-seeking efforts
[that] increase one’s wealth or income at
the expense of others.”
• In private sector, profit = social gain.
• In public sector, profit (rent) = misallocation.
• What is the most powerful entity in society?
The Government!!!
Exploitation - Taxation
• State sets the rules, but there are limits.
Rate
• Laffer Curve & taxes:
--Long run vs. short run.
--In SR . . .
 rates =  revenue
SR
T’
T*
LR
• Minn. 13.95% inc. tax!
• Illinois Increasing to 5%.
Taxes
Exploitation - Bureaucracy
$
• Tend to find Q where
TB = TC.
• Asymmetric information
issue. [Niskanen]
• Voting with our feet is
costly.
• Wage issue
• Higher/benefits
• Overpaid? Not if XS S.
MC
Q*
Q’
MB
“The public bureaucracy
is overstaffed, overpaid,
overqualified, and well
protected.”
Exploitation:
Manipulating Median Voters
• Choose budget or doom!
Private
• If Xr = revision budget,
voter will take up to Xb.
• BOAPW - Set Xr = 0!!!
Text Error
• Do median voters know
what is efficient?
• Also, small incremental
tax hikes hardly muster
opposition.
Xr
X
Xb
Public
Manipulating Voters
Cameron
Sam
Haley
Pri
Pri
Xr’
Xr
X*
No!
No!
Pub
Pri
Xr’Xr
X*
Yes!
No!
Pub
Xr’
Xr
X*
Yes!
Yes!
By choosing the optimal revision budget, the school
district can entice voters to pass it’s preferred budget, X*.
Pub
Exploitation - Education
K-12: violating consumer sovereignty
• Is it really free?
• School, curriculum, teachers, pedagogy
• Elitism?
• Why is monopoly good?
• What’s wrong with vouchers?
• Universal pre-K? What’s next?
• Homeschooling
& charter schools.
# Homeschooled ('000s)
1999
2003
2007
2013
850
1100
1500
1770
1.7%
2.9%
3.4%
Exploitation - Education
The University – a riddle wrapped …
“Following … Buchanan … one might say that [the
university] combines students as consumers who
do not buy with faculties or producers who do not
sell and taxpayers or owners who do not control.”
• Administration – growth & income
• Bloat data
• Faculty – min. workload & tenure & income
• Controllable – research, admissions, peers
• Elitism & Rhetorical extremism.
Exploitation - Education
Some observations from NAU +/• Workloads can be varied, but …
• Research requirements,
• Professional qualifications,
• Service requirements.
• Accreditation as oversight.
• Standards lowest in AZ – ABOR
• “Our job is to graduate students” vs. reputation.
• AZ - post tenure review; ASU-West.
• Individual college differ
• FCB & CEFNS vs. Ed.
Limits on Exploitation
• Consumers will move over time.
• Demographic map.
• Sprawl beyond Flagstaff city limits.
• Charter schools.
• More competition with on-line universities.
• Straining budgets are bursting.
Percent change in residential population, 2000-2010
ECO 481:
Public Choice Theory
Week 10:
Government Exploitation
& Schools
Dr. Dennis Foster