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Public Choice and Arrow’s Impossibility
Theorem: Implications for the Public Policy
Discipline
Gilbert Michaud

Public choice theory is of considerable significance to the


discipline of public policy. Often a subject studied by
economists and political scientists, public choice utilizes
traditional economic theory to comprehend political behavior.
McLean (1991) stated, “public choice is not a subject; it is a
way of studying a subject” (p. 1), signifying the application of
economic tools, such as rational choice theory, to understand
politics. While there has been debate concerning methods and
topics taught in graduate public policy programs (Morçöl &
Ivanova, 2010), public choice is a subject that is often
disregarded outside of the economics and political science
disciplines (Pincione, 2004). However, Altman (2012) showed
how bounded rationality and behavioral economics have
significant applications to public policy, and Pincione (2004)
claimed that it is “highly advisable” to teach public choice in
other disciplines while it “need not be predictively accurate” (p.
469).

This article will demarcate some of the principal concepts of


public choice theory and historical foundations related to
governments and elections. An in-depth analysis of Kenneth
Arrow’s impossibility theorem will follow, since voting and
preference aggregation are the most crucial takeaways for the
public policy discipline. Overall, public choice and Arrow’s
impossibility theorem should be increasingly incorporated into
the study of public policy as a way to better understand
political motivation, plurality voting, and policymaking.

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I. Public Choice

Public choice applies neoclassical economic methods focused


on self-interest and utility maximization to explain political
behavior (Hill, 1999). Mueller (2003) described it as “the
economic study of nonmarket decision making, or simply the
application of economics to political science” (p. 1). In public
choice, individuals, interest groups, and politicians are all
assumed to seek their self-interest (MacLean, 2011), just as the
“economic man” does in the marketplace. Political decisions
depend on the costs and benefits of an action taken, and each
group attempts to maximize their utility via egoistic and
rational processes (Mueller, 2003). Public choice’s subject
matter primarily consists of the theory of the state, voter
behavior, and party politics (Hill, 1999).

Public choice theory does recognize market failures (Lemieux,


2004), which explains why government ought to exist. In this
sense, efficiency, redistribution, and externality elimination are
justifications for collective action (Oppenheimer, 2012), as
governments work to provide public goods. Moreover, public
choice theory outlines how the federalist system is optimal as it
is efficient in sorting out the local, regional, and national levels
of government (Mueller, 2003). However, it asserts that direct
democracy is impossible in two-party systems since both
parties are pushed in the direction of the stance preferred by
the median voter (i.e., Anthony Downs’ median voter
hypothesis) (Turnbull & Djoundourian, 1994). This
phenomenon is a crucial component of public choice theory,
showing how voting systems often choose the candidate or
outcome favored by the median voter, subsequently pushing
politicians toward the middle of public opinion.

In public choice theory, self-interest also motivates


officeholders in terms of career advancement and re-election.
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Similarly, electorates back propositions and candidates that
they believe will maximize their respective utility (McLean,
1991). However, voters in democracies face a small probability
that their vote will decidedly change the result of the elections,
and collecting the information necessary for a well-informed
voting decision requires substantial time and work. Thus,
public choice theory claims it to be rational for voters to be
largely uninformed of government and politics and perhaps
even refrain from voting (Downs, 1998). Downs’ ‘paradox of
voting’ observation may explain low voter turnout.

However, for those who do turn out, collective choices emerge


based on preferences expressed at the ballot box. While
elections are a central component of democratic governance
(Powell, 2000), is it possible that individual preferences,
through a system of voting, can be aggregated accurately to
represent the inclinations of the greater citizenry? Can the
aggregate (i.e., society) be expected to behave like a rational
individual in ordering social outcomes? Arrow’s impossibility
theorem helps address these questions.

II. Arrow’s Impossibility Theorem

Numerous scholars have focused on preference aggregation


issues (e.g., Bouton & Castanheira, 2012; Chambers & Hayashi,
2014; Feddersen & Pesendorfer, 1997; Radcliff & Wingenbach,
2003), though none more pointedly and notoriously than
economist Kenneth Arrow. In his Ph.D. dissertation, Arrow
proved that there is no reliable method of making a fair selection
between three or more political contenders via a preferential voting method
(Sen, 1985). This social choice paradox illuminates the
impossibility of having a perfect plurality voting system, and
thus, the concept is now recognized as the “impossibility
theorem” or sometimes the “general possibility theorem.”

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Most economists today agree that individuals have ordinal
preferences, rather than a numeric scale of psychic happiness
that one can gather from goods, services, actions, etc. (i.e.,
cardinal preferences) (Samuelson & Nordhaus, 2009). In other
words, a combination of goods (or candidates) can be ordered
such that each is measured as better, worse, or equal to
another. However, it is uncertain how much more or less these
individuals might prefer a good or candidate in comparison
with another (Samuelson & Nordhaus, 2009). Each individual’s
ordinal favorite forms a preference relation, which provides
information to determine collective decisions. How can the
honest revelation of these preference orderings be assured? If
individuals cannot agree with how to rank a candidate, then
how can it be claimed that society as a whole ranks these
outcomes one way or the other?

To answer these questions, consider Arrow’s specific work on


this topic. Arrow examined social preference construction
from personal inclinations by identifying five conditions that
should be satisfied: 1) presented a selection between options A
and B, either A should be favored over B, or B over A, or an
indifference exists between the two; 2) options should be
transitive in the sense that if A is favored over B, and B over C,
then A is also favored over C; 3) if every person favors A over
B, then communally, A should be favored over B (i.e., Pareto
efficiency); 4) communal preferences should not be subject to
the partialities of one person (i.e., the dictator); and 5)
communal preference for A compared to B should remain free
of inclinations for other possible options (Arrow, 1963). What
Arrow proved is that in elections with three or more
candidates, it is impossible to satisfy these five criteria
simultaneously.

To illustrate, assume there are three candidates competing for


political office: a republican (R), a democrat (D), and a
libertarian (L). These candidates are all contesting in the same
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region, which is populated by 1,000 voters. Now, assume that
(R) has 450 voters who would elect him, but would instead
vote for (D) if (R) were not running. (D), on the other hand,
has 350 voters who back him primarily, but who rank (R) as
their second choice. Lastly, (L) has only 200 voters who are
committed supporters, and they would vote for (D) if (L)
withdraws, but not for (R). Hence, the voters’ ranking
preference may be presented as follows: 450 voters
(R)>(D)>(L); 350 voters (D)>(R)>(L); 200 voters
(L)>(D)>(R). What is seen is that of the non-(R) voters, a clear
majority of 350 out of 550 backs the (D) candidate. An
overwhelming majority of non-(R) voters would vote for (R) if
(D) decides to withdraw. However, presenting all three
candidates makes the election less democratic, particularly due
to the lack of political equality in the voting process.

If all three candidates run, the (R) simply wins with 450 votes
(scenario 1). However, suppose the (L) candidate withdraws.
All of its 200 supporters vote for their next choice, the (D)
candidate. As a result, (D) wins with 550 votes to 450 votes
(scenario 2). In scenario 1, (R) won despite the fact that they
were one of the top two choices of only 800 voters. The (D)
lost even though they were one of the top two choices of all
1,000 voters. Hence, the resulting outcome is paradoxical since
adding more ballot choices actually results in a less equitable
outcome. Here, a candidate who ranked first or second on
everyone’s list loses to a candidate who has lesser support in
the electorate’s first or second place ranking. Why is it that the
(R) candidate wins in one scenario and the (D) candidate wins
in the other, although the preferences of the citizenry remained
the same?

To further develop the example, consider a third possibility in


which the (D) candidate withdraws and the (L) candidate
remains in the running (scenario 3). In this case, the (R)
candidate wins with 800 votes as opposed to 200 votes for (L).

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Once again, there is a sub-optimal result where the winning
candidate is the choice of only 800 voters, while a non-running
candidate (D) ranks in the top two in everyone’s preference
list. What scenario 3 demonstrates is that if either opposing
candidate in an election has to withdraw, the less popular one
should consider giving way to the favorite in order to ensure an
outcome more reflective of the constituency. Of course, this is
hardly applicable in the real world. Contrary to common belief,
restricting voters’ choices by having one opposition candidate
withdraw could produce a more democratic conclusion.

Furthermore, the law of transitivity is broken in the example,


as (R) is favored to (D) which is favored to (L), but (L) is
favored to (R). Consequently, who is the true victor? Imagine
another illustration, in which an individual prefers the third
party candidate, the (L), in the election to the two main
candidates, (R) and (D). Since is it customarily acknowledged
that the (L) is not going to win, individuals may instead vote
for the (R) or (D) candidate so that their vote ‘counts’ toward
the eventual victor. Tsebelis (1986) refers to this as “tactical
voting” (p. 395), which is common in contemporary elections.

Ultimately, Arrow legendarily proved that group aggregation is


dissimilar to individual choice, as a preferential voting method
cannot comply with all of the noted criteria concurrently
(Arrow, 1963). The key implication of Arrow’s theorem for
public policy is that, in democratic systems, there is no way to
truly determine what policies citizens want, or which
candidates they want in office. Yet, while no voting system
may be perfect, this finding should not blind individuals to the
fact that plurality voting is still the most used method in the
world today. Arrow’s assertion was a remarkable achievement,
and public policy scholars ought to consider its implications
when cogitating elections and policymaking processes. For
instance, scholars and analysts must consider the fact that
policymaking via social preferences (e.g., multiple-choice
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referenda) may be inaccurate. They must also note the fallacies
in the plurality voting method, and perhaps explore ordinal
ranking schemes, such as the Borda count system, as an
alternative approach to determining a winner.

III. Conclusion

Public choice theory and Arrow’s impossibility theorem should


play a more prominent role in the public policy discipline
today. The theorem is substantial when considering the
implications it has on elections, and Arrow is generally correct
in his proclamation on the complications of aggregating
individual preferences into communal ones. However, it is
important to recall that Arrow was working within a particular
set of requirements to establish his proof. Therefore, public
policy should not relegate itself strictly to Arrow’s theorem, as
it may be impossible to guarantee the aggregation of individual
wishes within his conditions. Consider, for instance, the
influence of money power on elections and the imbalance that
provides to elections (Nichols & McChesney, 2013). Moreover,
individuals repeatedly make decisions that diverge from the
expectations of rational choice models (Eriksson, 2011).
Despite such limitations, Arrow’s theorem needs to be
integrated into the conventional public policy curriculum,
particularly concerning the discussion of voting procedures for
collective decision-making. The neoclassical economic models
of public choice used to explain political behavior offer an
intriguing way to think about how politicians and
constituencies act under a certain set of conditions, which has
far-reaching implications for public policy studies. !

Gilbert Michaud is a Ph.D. candidate at Virginia Commonwealth University,


pursuing a degree in Public Policy & Administration. He holds a Bachelor of
Arts in Economics and a Master of Science in Community Economic
Development. Previously, Gilbert worked for the US Business Executive Journal

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as the lead researcher for the Energy & Power segment, producing over forty
organizational case studies.
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