User:Xerographica/Concentrated benefits and diffuse costs

Concentrated benefits and diffuse costs, also described as concentrated benefits and dispersed costs, is an important concept within public choice theory. It refers to many taxpayers having to pay for government programs/projects that only benefit few people.

Passages

But personal interest is no longer a safe criterion if individual interests are not left to counteract and control each other. If one individual, or one class, can call in the aid of authority to ward off the effects of competition, it acquires a privilege and at the cost of the whole community; it can then make sure of profits not altogether due to the productive services rendered, but composed in part of an actual tax upon consumers for its private profit; which tax it commonly shares with the authority that thus unjustly lends its support. The legislative body has great difficulty in resisting the importunate demands for this kind of privileges; the applicants are the producers that are to benefit thereby, who can represent, with much plausibility, that their own gains are a gain to the industrious classes, and to the nation at large, their workmen and themselves being members of the industrious classes, and of the nation. - Jean-Baptiste Say

The taxes would be paid by the people over the whole country, but the benefits would go to the few people in those particular locations. This type of spending is a rather gross waste of resources that worsened over the years as the government has been allowed to do more particularized things. - James M. Buchanan

So, in one country, the fruit of labor is taken from the workman by taxes, under pretence of the welfare of the state; in another, by privileges, declaring labor a royal concession, and making one pay dearly for the right to devote himself to it. The same abuse is reproduced under forms more indirect, but not less oppressive, when, by means of custom-duties, the state shares with the privileged industries the benefits of the taxes imposed on non-privileged classes. - Jérôme-Adolphe Blanqui

There is systematic tendency for exploitation of the great by the small! - Mancur Olson

There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson

The problem of concentrated benefits and diffused costs is a real problem. - Milton Friedman

At the moment, we in the United States have available to us, if we will take it, something that is about as close to a free lunch as you can have. After the fall of communism, everybody in the world agreed that socialism was a failure. Everybody in the world, more or less, agreed that capitalism was a success. The funny thing is that every capitalist country in the world apparently concluded that therefore what the West needed was more socialism. That's obviously absurd, so let's look at the opportunity we now have to get a nearly free lunch. President Clinton has said that what we need is widespread sacrifice and concentrated benefits. What we need is exactly the opposite. What we need and what we can have - what is the nearest thing to a free lunch - is widespread benefits and concentrated sacrifice. It's not a wholly free lunch, but it's close. - Milton Friedman, The Real Free Lunch: Markets and Private Property

What predictions can we make on the basis of this simple model of individuals and interest groups bidding for legislation? One is that legislation will tend to benefit concentrated interest groups at the expense of dispersed interest groups--where "concentrated" and "dispersed" describe the bundle of characteristics that determine how large a fraction of the benefit that the members of the interest group would receive from legislation can be raised by the group to buy the legislation. - David Friedman, The Political Market Place

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers' pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote. - David Boaz

Like public choice theorists, Hayek understood the danger of interest groups in the context of the logic of concentrated benefits and dispersed costs. While these “innumerable interests...could show that particular measures would confer immediate and obvious benefits on some, the harm they caused [on others] was much more indirect and difficult to see”. - Peter Boettke, Peter Leeson

Contrary to facile assumptions, economic interests, insofar as their behavior is illustrated in the tariff revision of 1929-1930, are not universally active in promoting their interests in politics. … Apparently, equal stakes do not produce equal pressures. The protective tariff is well established because large areas of adverse interests are too inert and sluggish to find political expression while an overwhelming proportion of the active interests have been given a stake in maintaining the system. - Elmer Eric Schattschneider

The advance of the liberal and democratic idea [in Italy] has consisted in the gradual extension of legislative favors, passing from the major to the minor groups, from the older established groups to the newly established ones, from the landed proprietors to the industrialists, to the state functionaries, to the laborers’ co-operatives, to the proletarian organizations. There was the hierarchy of the great, the medium, and the little privileges. Parliament became, logically, the marketplace where state favors, great and small, were bargained for, the costs of which were paid for by the great mass of consumers and taxpayers. The defense of the latter was banished from the parliamentary arena. - Antonio De Viti De Marco

See also

• Demonstrated preference
• Dollar voting
• Government failure
• Government success
• Kludgeocracy
• Other people's money
• Privatizing profits and socializing losses
• Rational ignorance
• Rent seeking
• Socialism for the rich and capitalism for the poor
• Tax choice
• The Logic of Collective Action

References

• Coleman, John - Democracy's Debt Dilemma Harvard Business Review. 24 April 2012
• Farber, Daniel A. and O'Connell, Anne Joseph - Research Handbook on Public Choice and Public Law 2010
• Schneider, Friedrich and Rowley, Charles Kershaw - The Encyclopedia of Public Choice 2004
• Olson, Mancur - The Logic of Collective Action. Harvard University Press. 1971
• Taylor, John B. and Weerapana, Akila - Principles of Microeconomics 2009
• Nechyba, Thomas - Microeconomics: An Intuitive Approach 2010
• Persson, Torsten and Tabellini, Guido Enrico - Political Economics: Explaining Economic Policy 2000
• Tomasi, John - Free Market Fairness 2012
• Public Choice: Why Politicians Don't Cut Spending. LearnLiberty.org. 20 April 2011
• Boaz, David - Well Worth the Money. Cato. 22 Aug 2011
• Boaz, David - What Big Government Is All About The Freeman.
• Ikeda, Sandy - Two Kinds of Government Failure The Freeman.
• Giberson, Michael - Concentrated benefits and dispersed costs

Category:Public choice theory Category:Libertarianism Category:Economics