Rational Choice Theory and Irrational Behavior

Lecture 8
Dr. Aisha Azhar
• Rational choice is not just a positive theory (an explanation of how the
world does work), but also a normative theory (an explanation of how
the world should work)
• The impact of rational choice lies in three primary areas.
• Organizational behavior. Rational choice theory offers a comprehensive
framework to answer the question of why bureaucracies and bureaucrats do
what they do.
• Public service delivery. Rational choice theory offers an explanation of how
public goods are produced and consumed, and from these insights favors a
series of public-sector reforms that turn traditional public administration
presumptions and prescriptions on their heads.
• A claim for a new theoretical orthodoxy. Advocates of rational choice theory
have argued that it is the natural successor to the Wilsonian/Weberian ideas
that have dominated a century’s worth of intellectual development in rational
choice.
The Rational, Self-Maximizing Bureaucrat

• Following the core assumptions of rational choice theory, all these

works begin with the presumption that Bureaucrats as self-interested
utility maximizers.
• What a bureaucracy would look like if bureaucrats were self-
interested utility maximizers. A rational, self-interested bureaucrat
maximizes utility through career advancement, and that advancement
in the merit-based systems of public bureaucracies often depends
upon the favorable recommendations of superiors.
• Thus, a rational bureaucrat will highlight information that reflects
favorably upon himself and will limit information that does not.
Distorting information in this way will create a host of problems.
• The lack of information will concurrently diminish their ability to hold
the bureaucracy accountable.
 The Rational, Self-Maximizing Bureaucrat (contd.)
• A set of behavioral biases should be common to all bureaucrats:
1. Bureaucrats will be motivated to distort information as it passes
upward in the hierarchy to reflect favorably on themselves and their
individual goals.
2. Bureaucrats will favor policies that fit with their own interests and
goals.
3. How bureaucrats react to directives from superiors will depend on
how those directives serve the bureaucrats’ self-interest. If the
directives favor individual interests, the degree of compliance will be
high; if not, it will be low.
4. Individual goals will determine the extent to which bureaucrats
seek out responsibility and also determine their risk tolerance to
fulfill responsibility and power.
The Rational, Self-Maximizing Bureaucrat (contd)
• “Climbers” are bureaucrats who want to maximize their power, income, or
prestige. Climbers are likely to pursue responsibility aggressively, especially in the
sense of creating new functions for their agencies.
• In contrast, “conservers” are bureaucrats who want to maximize security and
convenience, and they will more likely defend existing prerogatives and functions
rather than try to invent new ones.
• “Zealots” are bureaucrats motivated to pursue particular policies, even in the face
of overwhelming obstacles. Downs suggested that because zealots are unlikely to
make good administrators, they are unlikely to hold high organizational ranks.
• Other categories included “advocates,” who, like zealots, aggressively pursue
favored policies but are more open to influence from peers and superiors, and
“statesmen,” bureaucrats seeking to promote the public interest through the
promotion of broad policy goals
 The Rational, Self-Maximizing Bureaucrat (contd)

• Bureaucrats seek to maximize their budgets by “selling” a certain level of

public services to legislators. For any given bureaucracy, a subgroup of
legislators will have powerful incentives to secure high levels of the service
produced.
• These incentives are largely electoral—bureaucracies provide contracts, jobs,
and services that benefit constituents and for which legislators can claim
credit.
• The discretionary budget is defined as “the difference between the total
budget and the minimum cost of producing the output expected by the
political authorities”.
• This is a subtle but important difference from the budget-maximization
standpoint. It means that bureaucrats are seeking to maximize control over
their budgets rather than the absolute size of their budgets.
 Trust and the Irrational Bureaucrat
• Public administration scholars have long recognized the influence of individual
personalities on organizational performance.
• Recent empirical evidence shows that perceptions of a leader’s characteristics
influence whether a follower will engage in a particular behavior.
• Followers that attribute competence and trustworthiness to leaders are not
only more likely to follow authoritative requests but are also more likely to
engage in risky behavior on behalf of leaders/managers, and are less likely to
perceive a need to break the rules or “sabotage” the organization.
• Identity-based trust is important because it reduces the likelihood of betrayal
within organizations and increases the probability that employees will seek to
prevent organizational crises.
• In short, subordinates respond favorably to leaders who exhibit trustworthiness
 The Self-Maximizing Citizen and the Tiebout Hypothesis
• Public servants have no clear, consistent role as “buyer” or “seller,” and what is being
exchanged, with whom, and by what mechanism is simply not as intuitively or
empirically obvious as the market for, say, cars or soft drinks.
• In the rational choice framework, citizens consume public services; the patterns and
motivations of their consumption can become the rough equivalents of consumption
patterns in markets for cars or soft drinks.
• By definition, a public good is indivisible, something that cannot be broken up and
distributed individually. For example, an individual consumer can purchase a car or a
can of soda based on personal preferences. This is hard to do with public goods such as
clean air or national defense because they require binding collective decisions rather
than individual ones.
• Thus, one public bureaucracy should provide, say, law enforcement for a given area.
This will ensure that a vital public service is available to all, avoid duplication of service,
simplify command and control, and, in doing so, promote efficiency and accountability.
• One problem with this line of reasoning is that some goods and services fall into a gray
area between public and private.
The Self-Maximizing Citizen and the Tiebout Hypothesis (contd.)
• Better arrangement would be a market for public services,
• Instead of one centralized agency in one jurisdiction, citizen-consumers have a
broad variety of tax-service packages and could move to the location that best
fit their preferences.
• Competition would force these multiple agencies to produce high-quality public
services at low cost, their alternative being to face being abandoned by the
public.
• This line of reasoning suggests that, rather than centralized bureaucracies
providing public goods and services, they could be better supplied by a
competitive market arrangement.
• The central hypothesis of the Tiebout model is that many agencies
competing horizontally (across jurisdictions) and vertically (within
jurisdictions) will provide a higher-quality service at a lower price, and
be more attuned to citizens’ preferences, than will large bureaucracies
in centralized jurisdictions.
The Self-Maximizing Citizen and the Tiebout Hypothesis
(contd.)
• Several assumptions about Tiebout Model
• First, Tiebout assumed that citizens are perfectly mobile, meaning they can easily move from
community to community.
• Second, the model requires citizens to be highly informed about tax-service packages across
several jurisdictions.
• In a public goods setting, Ostrom has shown that, given the opportunity
to communicate, people are quite capable of solving social dilemmas
through cooperation.
• In short, people are able to govern themselves.
• Communication increases the likelihood of cooperation, and individuals
tend to voluntarily punish those who fail to cooperate.
• For Ostrom, the key factors are trust, reciprocity, and reputation. Trust
and trustworthy reputations create opportunities for cooperation
between individuals, cooperation that in turn tends to be reciprocated.
 Rational Choice as the New Orthodoxy
• Ostrom argued that the intellectual foundations of public administration
were built upon a set of seven theoretical propositions formulated by
Woodrow Wilson.
• First, there is, and always will be, a dominant center of power in any system of government.
• Second, the more power is divided, the more irresponsible and difficult to control it becomes.
• Third, the structure of a constitution determines the composition of central power.
• Fourth, the process of government can be separated into two parts: determining the will of
the state (politics) and executing the will of the state (administration).
• Fifth, although the institutions and processes of politics vary widely from government to
government, all governments share strong structural similarities in administration.
• Sixth, “good” administration is achieved by the proper hierarchical ordering of a professional
public service.
• Seventh, perfection of “good” administration is a necessary condition for advancement of
human welfare.
Rational Choice as the New Orthodoxy
• Weber considered bureaucracy a technically superior form of
organization in the sense that it favored merit, professional expertise,
rational division of labor, and standardized decision making processes.
• These seemed a worthy alternative to patronage, partisan fealty, and
political expediency as a basis for carrying out the will of the state.
• Ostrom argued that public administration scholars had concentrated on
the technical superiority of the bureaucratic organization—its abilities to
produce public goods efficiently—while ignoring the potential
implications for the democratic process.
 Rational Choice as the New Orthodoxy

• Weber said that a democratic administration would have four

characteristics.
1. Everyone is assumed to be qualified to participate in the conduct of public
affairs. All citizens, not just technocrats, are assumed to have the necessary
expertise to become involved in deciding what policies to pursue and how to
pursue them.
2. Important decisions are opened up to all members of a community and their
elected representatives.
3. Power is broadly diffused, not concentrated in a dominant center.
4. Administrative functionaries are public servants, not a technocratic elite of
“public masters.” Under these conditions, a democratic administration will be
concentrated by polycentric government—one with multiple power centers in
multiple layers
Rational Choice as the New Orthodoxy
• In representative democracy’s view point, the mission of any public bureaucracy
has to be top-down, not bottom-up. A public agency is ultimately responsible to
the representative legislature and the law that authorizes its existence, its
purpose, and its mission.
• The job of a public agency is not to divide the preferences of its clientele and then
satisfy them.
• A public agency, in other words, is just that: public. It is not the equivalent of a
private-sector producer serving a market niche by satisfying the preferences of a
certain set of customers. A public agency’s job is to serve the collective institutions
of the democratic system and, ultimately, the Constitution.
• Democracy is a set of guarantees about process—a person’s rights to participate in
collective decisions—not about outcomes.
• The market delivers what the individual wants; democracy delivers what we can all
agree upon and live with.