Public Sector Economics
Study Questions For The Third Exam
These questions are not designed to take the place of studying your notes and the reading assignments. Do not e-mail me and ask me to answer all or some of these questions for you. If you have missed class, it is your responsibility to get the notes from another student. Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not. Don't be afraid to ask me questions, I just want you to try to answer the questions yourself first. Make sure you have done all of the reading assigned. Also, pay attention to the homework questions and the exercises we have done in class when studying.
Topic: Public Choice: Rent Seeking
1. How could the system possibly be changed to decrease the costs of rent seeking?
2. Some might think that rent seeking evens out income in the economy - however, public choice economists contend that that probably isn't true. Why?
Topic: Public Choice: Public Choice Cont. - Voting
1. What is a voting rule?
2. What is direct voting?
3. What is representative voting?
4. Buchanan discusses several differences between the individual consumer and the individual voter when they are making choices. These differences lend themselves to differences in how people might act in the political arena versus the market arena. In each of the following, explain what the difference is and then how it would influence individual behavior.
a. Uncertainty of outcomes
b. Degree of social participation
c. Degree of responsibility
d. Nature of the alternatives presented
e. The degree of coercion
5. What is rational ignorance?
6. At what point (according to mainstream economic theory) will people stop searching for more information regarding a candidate or bill? Graph and explain.
7. What are some possible political outcomes of rational ignorance?
8. Political campaign strategies "take advantage" of rational ignorance. What are some examples? Explain.
9. Caplan says there are three possible answers as to why we get the outcomes of democracy that we see. What are they?
10. What does Caplan mean by "rational irrationality?" Explain.
11. How might one describe the difference between rational ignorance and rational irrationality?
12. What does Caplan mean by a "demand for irrationality curve?" Draw and explain.
13. Caplan says that there are four biases (myths) that voters have with respect to economics. What are they - can you explain them and explain why economists consider them myths (wrong with respect to being beneficial)? Examples? What policies flow from these myths that Caplan (and many other economists) doesn't think are good (they benefit a few but harm the majority of people).
14. How might one criticize the idea of rational irrationality?
15. What is the "miracle of aggregation" argument? What does it say about democracy?
16. What is Caplan's criticism of the miracle of aggregation argument? What is Callahan's criticism?
17. Farrand critiques Caplan by saying that the problem with democracy might not be "irrationality" but the lack of sufficient knowledge for voters because voters respond to "political signals" - and this leads to problems. What are they - he talks about three?
18. Wittman argues that democracy does not fail, as the public choice literature often claims. Particularly he argues against three popular arguments - what are they and what are Wittman's arguments (generally) regarding these three arguments?
19. Caplan seems to agree with Wittman except with respect to voters. Caplan says that voters are to blame for many of the problems with democracy due to rational irrationality. Farrand disagrees - what are his arguments?
20. According to Farrand, Caplan does not blame politicians for problems in democracy. Why not?
21. What is Farrand's response to this? (i.e., would politicians promote good economic policies in the absence of the voter issue?).
Topic: Public Choice: Voting Rules, Etc.
1. What is unanimity (with respect to a voting rule)? Many say that it is the only moral voting rule - why?
2. What is majority rule?
3. What is super-majority rule?
4. What is the plurality rule?
5. What is the committee rule?
6. What is a dictatorship?
7. What does "one man, one vote" mean?
8. What does equal voting mean?
9. What are threshold requirements regarding voting? Examples?
10. What is approval voting?
11. What is exhausted voting?
12. What is weighted voting?
13. What is point voting?
14. Why might point voting be preferable to majority rule? Explain. Go over the exercise we did in class!
Third Exam Ended Here
15. With respect to majority voting - how and when will vote trading among voters increase efficiency? How and when will it not increase efficiency? How is efficiency defined in this analysis? Criticize this.
16. With respect to majority voting with exhausted voting - explain Condorcet's voting paradox? What causes it? What are its implications?
17. How is a median voter defined?
18. According to Randy Holcombe, when should the median voter model be doubted (not realistic) and when does it have merit (more realistic)?
19. What does the median voter model predict (basically speaking)? Graphically represent the theory with respect to political ideologies. Would it be considered "efficient" from the mainstream view? When would it be? When wouldn't it be?
20. Using the median voter model -- graph the full electorate when there is political consensus. What will politicians tend to do if they believe this to be true?
21. Using the median voter model -- graph the full electorate with polarized politics. What results could occur in this case? What will politicians tend to do if they believe this to be true?
22. Criticize the median voter model.
MAKE SURE YOU GO OVER THE HOMEWORK, IN CLASS EXERCISES AND READING.