The Review of Austrian Economics, 15:2/3, 199–209, 2002.
2002 Kluwer Academic Publishers. Manufactured in The Netherlands.
The Democratic Efﬁciency Debate and Deﬁnitions
of Political Equilibrium
Department of Economics, University of Oklahoma, Norman, OK 73019-2103, USA
Abstract. An ongoing debate has been occurring within public choice for over a decade concerning the efﬁciency
of democracy. Virginia Political Economy holds that political markets perform very differently from traditional
markets. Chicago Political Economy, exempliﬁed by the work of Becker and Wittman, maintains that political
equilibrium, properly deﬁned, is relatively efﬁcient. I argue that the debate can be understood at least partially
in methodological terms: Chicago views politics exclusively within the equilibrium framework of traditional
economics, while Virginia drawsat least implicitly on Austrian economics’ view of the economy as a disequilibrium
process. I contend that the factors which public choice scholarship has identiﬁed as distinguishing politics from
markets—rational ignorance, majority rule, collective outcomes—affect the performance of politics as a process
even if political equilibrium is relatively efﬁcient.
Key Words: political equilibrium, efﬁciency, market process
JEL classiﬁcation: D72.
Positive analysis of government decision making has identiﬁed instances of inefﬁcient
resource allocation by the public sector, “government failures.” Public ﬁnance economists
had previously implicitly assumed that the public sector always tried to improve efﬁciency
(Brennan and Buchanan 1980). The public choice revolution has changed this forever. Gov-
ernment decisions are public goods, and consequent collective action and rational ignorance
problems interfere with efﬁcient allocation by the public sector. The theory of rent seeking
implies that government intervention in the economy often worsens resource allocation
compared to market outcomes (Stigler 1971, Posner 1975, Tullock 1980).
Several Chicago school political economists, however, have challenged the inefﬁciency
of democracy proposition. Their argument is a plea for symmetry: that the mechanisms
which promote efﬁciency in markets also apply to political markets. Wittman (1995:2)
offers a deﬁnitive statement of the Chicago efﬁciency claim: “I demonstrate that nearly
all of the arguments claiming that economic markets are efﬁcient apply equally well to
democratic political markets; and, conversely, that economic models of political—market
failure are no more valid than the analogous arguments for economic—market failure.”
Virginia Political Economy (VPE) strongly opposes the Chicago Political Economy (CPE)
efﬁciency argument, claiming in response that a lack of enforceable property rights produces
I would like to thank Pete Boettke, Ed Lopez and an anonymous referee for helpful comments on this paper.