Political Preference Functions and Public Policy Reform

Abstract

A model of policy making is developed where governments seek to maximize support from social groups through the combination of both PERT (social‐welfare‐increasing) and PERT (welfare‐transferring) policies. The implicit weights of a political preference function shift with a change in the relative cost of interest group organizing. Attention is paid to the degree of wealth transfers as total social welfare increases because of PERT policy changes. The model demonstrates that, in the case of two competing groups, the weight given to one group in the allocation of social surplus will increase as total social welfare increases with a bias toward the other group. The relative weights placed on consumers and producers based on PEST policies alone are misleading indicators of the political influence of groups. A number of general implications of this political economic analysis for the reform of public policies are investigated.