Explain political model of decision making with example
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Answer:
The traditional view of the role of government in a market economy is that the government is attempting to maximise social welfare. It is an exogenous agent acting to correct market failures and its role is to provide a legal, regulatory and institutional framework. To do this, it defines: the political rules needed for decision-making; the economic rules, such as those concerning property rights and the rules for contracts, enabling exchanges to take place. However, there are now many theories which have been put forward to explain how political and economic decisions are actually taken and you may come across these in the literature, so we will mention some of them briefly.
In these new theories, government is not taken to be a single, exogenous entity, but is viewed as a collective form of a number of legislative and institutional groups, such as bureaucrats and political parties, each of which has its own set of objectives.
These theories may help us understand why certain policies are in place, and why others, which are more desirable from an economic point of view, are not attractive to policy-makers.
One of the main models is the rational choice model, which is based on the idea that the individual actors in the decision-making process act rationally and are trying to achieve their own aims in competition with one another. We will concentrate on this model later in this section.