Figure 2-1

Median Voter Theorem

• Each individual prefers the quantity

at which MB equals tax-price. If the
tax-price is $15, individual 1 prefers 60 $
16, individual 2 prefers 23, and 55 MB3
individual 3 prefers 33. The median 50
preferred quantity is 23 and 45
individual 2 is the median voter. 40
MB2
• If the current quantity is less than 23, 35
both individuals 2 and 3 vote for an 30
increase in the quantity. If the 25
current quantity is greater than 23, 20 MB1
15 B Tax
both individuals 1 and 2 vote for a
decrease in the quantity. 10
5
• The quantity chosen by simple 0
majority rule is 23, the preferred 0 5 10 15 20 25 30 35 40 45
quantity of the median voter. Quantity

Public Choice 1
 Figure 2-2
Simple Majority Is Not the Lowest Cost Political Decision Rule

• Administrative cost, A, increases as

the percent of voters required for Cost
10
approval increases.
9 A
• External cost, E, decreases as the
8 S
percent of voters required for
approval increases. 7
6
• The total cost curve, S, is the sum of
administrative cost and external cost. 5
4 D
• At 40%, administrative cost, ab, plus
3
external cost, ac, equals total cost
2 c
shown by point D.
1 b
• The total cost of the political a E
decision rule, S, is lowest for the 0
40% rule. Simple majority, one more 0 20 40 60 80 100
than 50%, is not the lowest cost Percent of Voters
voting rule.

Public Choice 2
 Figure 2-3
Simple Majority Rule Doesn’t Choose the Efficient Quantity

• If the marginal social cost is divided

equally among the voters, each
individual pays a tax-price of $15. 60 $
• At a tax-price of $15, individual 2 55 MSB
prefers the quantity 23. Individual 2 50
45 MSC
is the median voter so simple
majority rule chooses 23. 40
MB2
35
• The efficient quantity is 27 where 30
marginal social benefit equals 25
marginal social cost. Simple majority 20
rule does not choose the efficient 15 Tax
quantity. 10
5
• The quantity chosen by simple 0
majority rule may be greater than or 0 5 10 15 20 25 30 35 40 45
less than the efficient quantity. Quantity

Public Choice 3
 Figure 2-4
Lindahl Equilibrium

• In a Lindahl equilibrium, each

individual’s share of marginal social
cost is proportional to his/her share 60 $
of marginal social benefit. 55 MB3 MSB
50
• Suppose individual 1’s tax-price is 45 MSC
$7, individual 2’s tax-price is 40
$10.50, and individual 3’s tax-price MB2
35
is $27.50. The sum of the tax-prices 30
equals $45, the marginal social cost. 25
20 MB1
• With these tax-prices, each individual
15 B
prefers the same quantity, 27, which 10
is also the efficient quantity. 5
• Simple majority rule chooses the 0
efficient quantity, but so does any 0 5 10 15 20 25 30 35 40 45
other voting rule. Quantity

Public Choice 4
 Figure 2-5
Cyclical Majority Does Not Occur with Single-Peaked Preferences

• Suppose $2500 is Huey’s third

choice, $5000 is his second choice, Rank
and $7500 is his first choice.
Huey
• $2500 is Dewey’s second choice, 1
$5000 is his first choice, and $7500
is his third choice. Louie
• $2500 is Louie’s first choice, $5000 2
Dewey
is his third choice, and $7500 is his
second choice.
• Louie’s preferences are inconsistent. 3
He prefers the two extremes to the
middle. His preference line has two
peaks, at $2500 and at $7500, not
just one. 2500 5000 7500
Expenditure per Pupil
Public Choice 5
 Figure 2-5
Cyclical Majority Does Not Occur with Single-Peaked Preferences

• When individual preferences have

multiple peaks, the cyclical Rank
majority occurs. But suppose
$5000 is Louie’s second choice and Huey
1
$7500 is his third choice.

Louie
2
Dewey

2500 5000 7500

Expenditure per Pupil
Public Choice 6
 Figure 2-5
Cyclical Majority Does Not Occur with Single-Peaked Preferences

• When individual preferences have

multiple peaks, the cyclical Rank
majority occurs. But suppose
$5000 is Louie’s second choice and Huey
1
$7500 is his third choice.
• Now Louie’s preferences are
consistent. He always prefers a 2
smaller expenditure per pupil to a Dewey
larger expenditure per pupil.
• His preference line is now single- 3 Louie
peaked like Huey’s and Dewey’s.

• If all individuals have single-peaked

preferences, the cyclical majority or
paradox of voting does not occur. 2500 5000 7500
Expenditure per Pupil
Public Choice 7
 Figure 2-6
Reversion Model

• The median voter’s preferred

quantity is 20 where marginal benefit
equals marginal cost, but 20 is not on $
the agenda. 50
• Suppose the reversion quantity is 10. 45
If the median voter rejects the 40
bureaucrats’ proposed quantity, the 35
reversion quantity is adopted and the 30
median voter’s loss is area A. 25 A MC
• If the median voter accepts the 20 B
bureaucrats’ proposed quantity, the 15
median voter’s loss is area B. 10
• If budget-maximizing bureaucrats 5 MB
propose a quantity slightly less than 0
30 so that area B is slightly smaller 0 5 10 15 20 25 30 35 40 45
than area A, the median voter
Quantity
accepts the proposed quantity.
Public Choice 8
 Figure 2-6
Reversion Model

• If the reversion quantity is 5, the

voter’s loss, area A, increases.
$
50
45
40
35
30
25 A MC
20 B
15
10
5 MB
0
0 5 10 15 20 25 30 35 40 45
Quantity

Public Choice 9
 Figure 2-6
Reversion Model

• If the reversion quantity is 5, the

voter’s loss, area A, increases.
$
50
45
40
35
30
25 A MC
20 B
15
10
5 MB
0
0 5 10 15 20 25 30 35 40 45
Quantity

Public Choice 10
 Figure 2-6
Reversion Model

• If the reversion quantity is 5, the

voter’s loss, area A, increases.
$
50
45
40
• Now, area B is smaller than area A 35
with any proposed quantity less than
30
35, and the median voter accepts a A
proposed quantity slightly less than 25 MC
20 B
35.
15
10
5 MB
0
0 5 10 15 20 25 30 35 40 45
Quantity

Public Choice 11
 Figure 2-6
Reversion Model

• If the reversion quantity is 5, the

voter’s loss, area A, increases.
$
50
45
40
• Now, area B is smaller than area A 35
with any proposed quantity less than
30
35 and the median voter accepts a A
proposed quantity slightly less than 25 MC
20 B
35.
15
10
5 MB
• The lower is the reversion quantity, 0
the larger is the proposal that 0 5 10 15 20 25 30 35 40 45
bureaucrats’ can get the voters to
approve. Quantity

Public Choice 12