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Two insights follow immediately from economists’ study of collective choice processes. First, the individual becomes the fundamental unit of analysis. Public choice rejects the construction of organic decision-making units, such as “the people,” “the community,” or “society.” Groups do not make choices; only individuals do. The problem then becomes how to model the ways in which the diverse and often conflicting preferences of self-interested individuals get expressed and collated when decisions are made collectively.

Second, public and private choice processes differ, not because the motivations of actors are different, but because of stark differences in the incentives and constraints that channel the pursuit of self-interest in the two settings. A prospective home buyer, for example, chooses among the available alternatives in light of his personal circumstances and fully captures the benefits and bears the costs of his own choice. The purchase decision is voluntary, and a bargain will be struck only if both buyer and seller are made better off. If, on the other hand, a politician proposes a project that promises to protect the new homeowner’s community from flooding, action depends on at least some of his neighbors voting for a tax on themselves and others. Because the project’s benefits and costs will be shared, there is no guarantee that everyone’s welfare will be improved. Support for the project will likely be forthcoming from the owners of houses located on the floodplain, who expect to benefit the most. Their support will be strengthened if taxes are assessed uniformly on the community as a whole. Homeowners far from the floodplain, for whom the costs of the project exceed expected benefits, rationally will vote against the proposal; if they find themselves in the minority, they will be coerced into paying for it. Unless the voting rule requires unanimous consent, which allows any individual to veto a proposal that would harm him, or unless those harmed can relocate easily to another political jurisdiction, collective decision-making processes allow the majority to impose its preferences on the minority. Public choice scholars have identified even deeper problems with democratic decision-making processes, however.