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The Public Choice Theory

The Public Choice Theory

  • James M. Buchanan's work within Public Choice earned him the Nobel Prize in Economic Science in 1986.
  • This theory shows that contrary to the conventional wisdom that public-sector actors act in the public's best interests, politicians and bureaucrats tend to act in self-interest, just like private-sector actors.
  • Using these insights, we can better understand the incentives that motivate political actors and better predict the results of political decision-making, then design fixed rules that will lead to better outcomes.

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MORE IDEAS FROM THE SAME ARTICLE

The economic theory of expected utility maximization says that people will act out of rational self-interest. But psychologist Daniel Kahneman showed that it is incorrect.

Political science professor Elinor Ostrom showed that common-pool resources, such as water supplies or fish, can be effectively managed collectively without government or private control.

  • In 1994 Nash, Selten and Harsanyi became Economics Nobel Laureates for their contributions to economic game theory.
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This is a key concept in modern financial theory used for valuing European options and employee stock options.

  • In 2001, George A. Akerlof, A. Michael Spence, and Joseph E. Stiglitz won the prize "for their analyses of markets with asymmetric information."
  • Economic models predicated on perfect information are often misguided. In reality, one party usually has superior knowledge

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