The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Preface
• The Reason of Rules
• 1.: The Constitutional Imperative
• I.: Introduction
• II.: Reasons For Rules
• III.: Rules of Games
• IV.: Rules of the Road
• V.: Rules of the Market Order
• VI.: Rules of Political Order
• VII.: The Importance of Rules
• 2.: The Contractarian Vision
• I.: Introduction
• II.: Noncontractarian Constitutionalism
• III.: Individuals As Sources of Value
• IV.: Contract and Exchange
• V.: Politics In the Exchange Perspective
• VI.: Unanimity As the Contractual Ideal
• VII.: Agreement On Rules and the Veils of Ignorance and Uncertainty
• VIII.: Conclusions
• 3.: The Myth of Benevolence *
• I.: Introduction
• II.: Private Good and Public Good
• III.: Science, Truth, and Politics
• IV.: The Authoritarian Imperative
• V.: Majoritarian Democracy In the Noncontractarian Paradigm
• VI.: The Aim of Politics
• 4.: Modeling the Individual For Constitutional Analysis
• I.: Introduction
• II.: Homo Economicus In Politics: the Argument For Symmetry
• III.: Science and the Empiricist Defense
• IV.: A Methodological Defense of the Differential Interest Model of Behavior
• V.: Social Evaluation and Quasi-risk Aversion
• VI.: Gresham’s Law In Politics
• VII.: Summary
• 5.: Time, Temptation, and the Constrained Future *
• Preface
• Part 1.: Individual Private Choice
• I.: Introduction
• II.: The Ultimate Z ’s
• III.: Preferences For Preferences
• IV.: Past, Present, and Future
• Part 2.: Individual Public Choice
• I.: Introduction
• II.: Society With a History
• III.: Temporal Interdependence
• IV.: An Illustration
• V.: Moral Rules And/or Constitutional Commitment
• 6.: Politics Without Rules, I: Time and Nonconstrained Collective Action
• I.: Introduction
• II.: The Social Discount Rate
• III.: The High-tax Trap
• IV.: The Inflation Trap
• V.: The Public-debt Trap
• VI.: Other Examples
• VII.: Conclusions
• 7.: Rules and Justice
• I.: Introduction
• II.: Just Conduct and the Notion of Desert
• III.: Justice and Promise Keeping
• IV.: Justice Among Rules
• V.: Just Rules, Agreed-on Rules, and Just Conduct
• VI.: Conclusions
• 8.: Politics Without Rules, II: Distributive Justice and Distributive Politics
• I.: Introduction
• II.: Distributive Justice: the Conventional View
• III.: The Constitutional Perspective and Institutional Incidence
• IV.: The Incidence of Unrestricted Majoritarianism
• V.: Tax Rules and Distribution Under Majority Rule
• VI.: Direct Constitutionalism and Distributive Justice
• VII.: Summary
• 9.: Is Constitutional Revolution Possible In Democracy?
• I.: Introduction
• II.: Pareto-superior Change and Wicksellian Unanimity
• III.: Distributional Limits and Prospective Rules
• IV.: Status Quo Entitlements and Distributional Envy
• V.: Constitutional Change and Free Riders
• VI.: The Role of Norms
• VII.: Toward a Civic Religion

Part 2.

Individual Public Choice

I.

Introduction

We have discussed the private-choice calculus of the individual in some detail because the analysis is helpful in introducing the more complex calculus of the individual confronting the public- or social-choice setting. In order to reduce the discussion to manageable proportions, we shall ignore several of the complexities that arise. We shall continue to neglect strategic behavior. The individual in a public-choice setting is one among many and can rationally treat the behavior of all others as if it were part of the environment and hence not subject to manipulation. We also continue to concentrate on the choice calculus of a single reference individual. We neglect problems involved in securing agreement among persons, although, as the argument will suggest, the operation of the rules for making arrangements may modify the individual’s choice behavior. We presume that the individual will behave in the many-person collective-choice setting as if he pursues his own interests as they are reflected in the underlying utility function.

One reason for the detailed elaboration of private-choice behavior in Part 1 was to suggest that in several respects, the private- and public-choice settings are similar. We can summarize the earlier analysis as follows: A person faces a choice at t₀, a choice that will be constrained by choices made in prior periods; this choice will be informed by the influence that behavior in t₀ is anticipated to exert on choices made in t₁ and beyond. The person in t₁ and beyond is, in part, constructed by choices made in t₀ and earlier, but at the same time the person in t₁ and beyond must be different from the one who must act in t₀. In this setting, the individual chooses among the Z’s in t₀; the individual may adopt moral rules; the individual may precommit future choices—all of these actions are designed to further the achievement of a preferred life plan.

II.

Society with a History

Let us now consider the position of an individual who, at t₀, is one among many members of a given society, a community, that has its own history, as a political-collective entity, quite apart from the various collected histories of its individual members. That is to say, the collectivity, as an organized polity, has “acted” over a sequence of past periods. It has gone to war or it has maintained peace; it has imposed onerous taxes on its citizens or it has not; it has allowed citizens to enjoy liberty over wide ranges of possible action or it has not. The “it” that has “acted” to create such a history must, of course, have assumed the form of specific persons who have assumed, captured, or been placed in roles of agents. But these persons as agents will have acted in the name of the collective unit rather than explicitly as identifiable individuals.

The history of the collective unit, described by “choices” taken in all past periods, will constrain the set of available choice options in t₀, those that may be confronted both by the collectivity as such and by the individuals within that collectivity, in a manner fully analogous to the interdependencies discussed in the earlier analysis of private choice. The historically determined constraints may be descriptively summarized in the laws, institutions, customs, and traditions of the community, including the rules or institutions that define the means of making collective “choices.” Again, as in the earlier analysis, the “choices” made by the collective unit as such in t₀ will modify the options that will emerge in t₁ and beyond, through influences on the constraints or preferences or both.

Our concern in Part 2 is with the choice behavior of the person who participates in some group decision process as one member (one voter) among many and who expects that his expressed preferences (“choices”) will be counted and amalgamated with those of others through the operation of a known rule (for example, majority or plurality voting) that will generate a single decisive collective outcome that once reached, will be effective for all members, that is, will be “public” in the formal, analytic sense of this term.

III.

Temporal Interdependence

Faced with a set of collective alternatives or options at t₀, the individual recognizes that both preferences and constraints embodied in the historical record are fixed. These are not within the set of choice variables under the control of the decision makers acting within the decision rules. Existing preference functions and the institutions generated by past choices are “relatively absolute absolutes,” subject to change, but only through time—change that might be influenced only marginally by choices made now. In reference to the individual’s own evaluation of the choice options, there is no difference between private choice and public choice in this respect.

A major difference emerges, however, when the individual recognizes that, for public or collective choice, the possible changes in his own preferences may be irrelevant. Collective decisions are reached through the operation of some rule that combines individual expressions of preference. A preference ordering for the collectivity, treated as a unit, need not correspond to that of any individual in the group and, indeed, may not exist at all.

At this point, the analysis seems to lead naturally into a discussion of the most familiar theorem in social choice, Arrow’s impossibility theorem.6 This theorem shows that, even if individual preference orderings are themselves consistent and do not change through a series of pairwise comparisons between alternatives in the inclusive collective-choice set, the “preference ordering” exhibited by the collectivity, as a unit, may not reflect internal consistency under plausibly acceptable rules for combining individual choices.

The temporal dimension as such is not central to the analysis of the Arrow impossibility theorem, and the whole extended discussion of that theorem has been based on the implicit assumption that all of the pairwise comparisons are contemporaneous. By contrast, our emphasis here is strictly on the time dimension and on its implications for the individual’s choice calculus. We are not directly concerned with the possibility of inconsistency in contemporaneous collective “choice,” although this possibility might well offer an additional “reason for rules,” one that we essentially neglect in this book. We are concerned with the attenuation of individual control over collective-choice options and with the effects of such attenuation. A person may exhibit a clear preference between two political-choice options, and the array of separate preferences may be such that the existing decision rule generates a stable result in each discrete time period. Even if the person expects the preferences of others to remain unchanged over a sequence of periods, however, there is no means of predicting whether the sequence of outcomes generated by the decision rule will exhibit a time path that, to this person, seems consistent with his own ordering.

Superficially considered, this result seems to be merely a variant of the impossibility theorem. Note, however, that the problem isolated for examination here is not located in the abrupt shiftability in the makeup of majority coalitions (in the absence of single-peakedness in preferences) as in the more familiar contemporaneous setting. The problem here finds its origins in the subjective nature of individual preferences themselves and in the inability of an individual to know why other persons order alternatives as they do. An individual may prefer option or candidate A to option or candidate B in t₀ because it is anticipated that the selection of A in t₀ will allow, in time period t₁, a further selection of a₁, which is the ultimately desired objective. Alongside such a person who supports A in t₀, however, there may exist someone else in the decisive coalition who chooses this option for precisely the opposing reason, in order to select a₂ in t₁, a final outcome that the first person may find pessimal rather than optimal.

This fundamental difference between individual calculation in private and public choice has not, to our knowledge, been analyzed. The individual will tend to make voting choices in terms of a shorter time horizon than that reflected in his private choices. The person cannot, by the nature of the choice setting itself, incorporate the multiperiod interdependence of decisions to the same degree that is possible in private choice. Although a chooser may recognize, equally in the two settings, that selections made now will influence both preferences and constraints in future periods, the current-period utility value to the individual from “investment” in furthering the achievement of what the same person would prefer the collectivity to become must remain relatively lower than any comparable investment in becoming the private person projected in some idealized life plan. Put in different words, the individual in private choice may try to choose among current-period options so as to construct himself as a continuing consciousness in subsequent periods, as he seeks to achieve a coherent life. The same person, placed as one among many in a public-choosing role, must exhibit less interest in selecting current options with future periods in prospect.

IV.

An Illustration

We shall illustrate the difference between private and public choice with a simple example. A person is in a collective-choice setting that presents two options in t₀, one of which will be chosen by the decision rule that combines individual expressions of preference between the two options. Each one of the options is expected to generate results that will be realized in t₁, at which time a second pairwise selection between two later options will be faced. The “choice” emergent from the decision rule in t₁ will, in turn, generate results that will be realized in t₂. We shall truncate the sequence arbitrarily at t₂ for the sake of simplicity.

The individual evaluates the expected payoffs from the perspective at t₀. Figure 5.1 depicts the example in a tree diagram, with specific numerical values for expected payoffs, all of which are evaluated from t₀. The initial options are A and B; which of these will command the expression of preference by our reference person, whose payoffs are as depicted? The “choice” will depend on what the individual predicts the subsequent collective “choice” at t₁ will be. If the setting were purely private, with identical payoffs, the person would know that control over the options at t₁ would remain internal. Hence, a reasonably high probability would be placed on the choice of a₁ at t₁, so as to allow the ultimate achievement of the highest present-valued payoff of 1,000. Despite the recognition that the person at t₁ will be different from the chooser at t₀, the latter’s subjective sense of continuity will make such a probability assessment rational. If the setting were one of private choice, therefore, A would be selected over B in t₀.

The postulated setting is one in which the individual is one among many, however, and the decision is to be made for the collectivity as a unit, with the results applicable to all persons in the community. We are concerned with how the individual will express a preference between A and B in the voting booth at t₀.

Our reference person may well vote for B rather than A in t₀, reversing the revealed preference that might be exhibited in the private-choice setting. He may take this action because of his inability to place a high probability on the prospect that the collectivity, as a unit and via the operation of the existing decision rule, will, when faced with the options a₁ and a₂ at t₁, select the a₁ option, the result indicated to be the most desirable to the person in question. There is here no continuity of consciousness, no sense of quasi-permanent psychological unity. Even if the voter-chooser at t₀ reckons that there will be no change in individual preference orderings, either in his own or in those of others, between the two time periods, a lower probability must be placed on the prospect that the decision rule will generate the most desirable result in t₁. This lower probability stems from the fact that the individual has no way of knowing why others, who may be partners in the coalition that might express preferences for A in t₀, order the options predicted to be faced at t₁. Persons in such a prospective coalition may well order the alternatives in Figure 5.1 in precisely opposed fashion to the person whose payoffs are depicted.

To make our example even more specific, consider a risk-neutral voter in the large-number setting who has no knowledge of the preferences of others. Under simple majority voting rules, this voter will assign a .5 prospect to each alternative at each stage in the pairwise choice sequence. In the numerical example of Figure 5.1, the individual will then vote for B over A, despite the fact that the present value of the sequence Aa₁ is higher than that of any other. If B is chosen, the individual enjoys the payoff of 600 units at t₁. By contrast, if A is selected by the decision rule, there is only a .5 prospect that t₁ having been reached, the rule will generate a₁ at the critical second node.

A more general way of stating the central proposition of the analysis is to say that the individual participant in collective choice will find it difficult to make instrumental use of the collectivity in the furtherance of genuinely long-term objectives. “Investmentlike” collective alternatives will tend to be placed lower than “consumptionlike” alternatives in individual orderings. This basic reason for the limited time perspective exhibited in collective or public choice is quite different from other, more familiar reasons having to do with electoral term limits and the nonmarketability of individualized shares in “public good.”

V.

Moral Rules and/or Constitutional Commitment

In Part 1 of this chapter we demonstrated that the individual who recognizes the temporal interdependence of choice may find it rational to adopt a set of moral rules even with reference to purely private behavior. It should be clear, however, that moral rules designed to constrain future-period behavior become enormously more important in the collective setting. The reference person knows that he is only one member of a group and that collective outcomes emerge from the operation of a specified decision structure. How can limits be placed on the “behavior” of the collectivity as a unit? How can the individual act in t₀ to ensure personal survival and security in the many-person world? He will seek to influence not primarily his own behavior in future periods but that of others who will be or will become members of the choosing group. With these considerations the individual may, on quite rational grounds, invest current-period resources in the indoctrination, dissemination, and transmission of a set of general principles or rules that will, generally, influence behavior toward patterns of situational response that are predictably bounded.

We also suggested in Part 1 that an awareness of the multiperiod interdependence of choice may sometimes provide a basis for precommitment, even in the most isolated private-choice setting. The individual may not trust himself as a rational chooser in any moment other than the reflective present. As we indicated, however, there are natural limits on precommitment in private choice, since the individual knows that his own freedom of action is to be constrained.

In a public-choice setting, no such natural limits apply, and the individual has immensely stronger grounds for choosing to impose constitutional precommitments on the behavior of collective entities. As noted earlier in Part 2, the individual at t₀ is less capable of predicting the collective response to the choice options predicted to be confronted in future periods than of predicting private, personal reactions. In the former, even if the individual predicts his own preferences accurately, there must remain uncertainty about the response patterns of others. As a general principle, rationality precepts should dictate an inverse relationship between the predictability of future-period “choices” and the desirability of constraining the set of future-period options.7

A second and related argument supports the relatively greater attractiveness of constraints on future-period choices in the collective setting. In strictly private choice, as noted earlier, the individual knows that any precommitment binds his ability to satisfy personal preferences, whatever these may be. There is a trade-off between precommitment and liberty. By contrast, in the public-choice setting, no such trade-off exists, at least in any direct sense. In voting for limits on future-period choice options open to the collectivity as a unit, the individual need not think in terms of restricting the set of personally preferred options at all. The boundaries imposed on the ranges of collective “choices” may be treated as being outside any set of potentially desired outcomes. Such boundaries may be considered applicable only to the potential collective outcomes that might be generated from the expressed preferences of persons other than the reference individual. Clearly, constitutional constraints on the collectivity’s power to act will tend to be treated quite differently than possible precommitments on private behavior.8

Let us return to the example depicted in Figure 5.1. The individual will tend to support a constitutional constraint that will increase the probability that the collectivity, when and if t₁ is reached, will generate the a₁ rather than the a₂ outcome. With such a constraint in place, the individual might select A rather than B in t₀, even in the public-choice setting. Consider, as a practical example, a collective choice between paying off and not paying off outstanding public debt. The individual may well express a preference for repayment, hence reducing future tax burdens associated with debt service, if he can be assured constitutionally or otherwise that new debt will not be issued once the old debt is retired. Failing such assurance, the individual may express preference for continued rollover of the old debt.

Constitutional commitments or constraints become means by which members of a polity can incorporate long-term considerations into current-period decisions. In the absence of such constraints, individuals will be led, almost necessarily, to adopt a short-term perspective in politics. We shall discuss some of the practical implications of this short-term perspective in Chapter 6.

6.

Politics Without Rules, I:

Time and Nonconstrained Collective Action

[6. ]See Kenneth J. Arrow, Social Choice and Individual Values (New York: Wiley, 1951).

[7. ]Ron Heiner has developed a theory of constraints based on the predicted vulnerability of actors to false interpretations of signals. The analysis is extended to behavioral rigidities in nonhuman species. See Heiner’s “Uncertainty, Rules, and Behavior: A Theory of Behavior and Evolution as the Resistance to Unreliable Complexity” (Brigham Young University, 1981, mimeographed).

[8. ]The relationship works both ways, of course. Although, as suggested, an individual may be more willing to impose limits on the range of collective outcomes as a means of securing protection against the impositions of others, the same individual may, and for much the same reasons, be more willing to use the agency of the state as a means of imposing his will on others. The reformers who secured adoption of the constitutional prohibition on the use of alcohol in the United States did not consider themselves to be restricting their own behavior.