State Failure in Social Contract and Public Choice Theory

‘Social contract’ theory of a state explains the origin and purpose of relation within the government and its people (Wiki Encyclopedia). The essence of the theory is proposed by Jean-Jacques Rousseau which gave enlightens of an assumption to the terms of agreement and mutual understanding between the government and people. To give a greater meaning, social contract relates to the government services to fulfil the interest of people (service-based delivery) and enforce the contract. Neo-classical economists suggested ‘social contract’ as the argument for government intervention in market failure.

In contrast, the ‘public choice’ theory, which most advocated by James Buchanan, involves the interaction of the voters, the politicians, and the bureaucracy in decision-making. Therefore, this theory is likely to be the argument against government intervention by giving proposition that a market failure is not necessarily a sufficient condition to establish intervention (Demsetz). By implementing integral interaction, it will lead to a better quality of policy exposures which is aimed to support the well-functioning markets.

To address as to whether a state failure can be explained from these two standpoints, it is worth noting that potential state failure may arrive from both of theories. This proposal arrives from an understanding that bureaucrats and politicians usually face incentives and own interest that tend to lead them producing inefficient income. Public, as voters, are also seeking for their own interest. So long as social contract or public choice theory is supported by a strong commitment from each economic actor, I agree that the state failure is oddly inevitable. Therefore, the government and politicians should have intentions to strengthen their institutional capacity.