1. Semester: III
2. Number of Credits: 4

Preamble
The objective of the course is to provide an introduction to Public Choice theory. Public Choice is a relatively young sub-discipline of economics, having developed as a separate field largely since 1948. Public Choice can be defined as the application of economics to political science. The subject matter is that of political science and the methodology is that economics. In this course the students will be introduced to various issues in a direct and representative democracy framework. Various policy matters too will be discussed in the Public Choice framework.

Module 1: Toolkit for Analysis & Basic Issues (12 hours)
The Emergence of Public Choice
A Just Social Contract: The Rawlsian Principle, Critique of Rawlsian Social Contract, Social Contract as a Constitution
The Constitution as a Utilitarian Contract

Module 2: Public Choice in a Democratic Framework (12 hours)
Direct Democracy:
The Choice of Voting rules
Majority Rule & Positive Properties: Median Voter Theorem, Logrolling, Cycling
Simple Alternatives to Majority Rule
Representative Democracy:
Two Party Competition: Vote and Popularity Functions. Partisan Cycles, Political business and Budget Cycles.
Bureaucracy

Module 3: Conflicting Interests (12 hours)
Interest Groups: Group size and Group Behaviour, Special Interest Theories.
Rent Seeking: Theory of Rent Seeking, Rent Seeking through Regulation and Political Process, Welfare Losses from Rent Seeking.

Module 4: Policy Issues (12 hours)
Government Size and Economic Growth: the Olson Hypothesis, Bureaucracy, Political Instability and Growth.
Political Economy of Local Government: The Decentralization Theorem, Exit and Voice within Local Government, Tiebout Hypothesis ‘voting with your feet’,
Public Choice and Intergovernmental Grants: The Flypaper Effect, Fiscal Illusion, the Leviathan hypothesis.