Public Sector Economics

 In Class Exercise Six - Voting Rules, Etc.

1.  The table below lists the preferences of three voters for three projects.  For example, voter 1 places a value of $1,000 on option A, $2 on option B and $1 on option C.

a.  Which project will win in a simple majority rule?  Does it depend upon the order of alternatives considered – that is if A is put up against B first, which would win, etc.

b.  If vote trading can occur – which project(s) would win and why?

c.  Is your answer to (b) an “efficient” outcome (theoretically) if the cost of each project for each person is $1.00?  Explain.

d.  If the cost of each project increases to $6.00 for each person, is the outcome from vote trading still efficient?  Explain.  Who loses and who gains?

e.  Under what voting rule could we be sure that an outcome is efficient (defining efficiency as individual costs - added up if possible - are less than individual benefits - added up if possible)?  Explain.

2.  You are voting (a referendum) on the following job candidates for a position in your firm.  Here are your choices:

1.  Bob the Barbarian

2.  Betty the Bulldog

3.  Bill the Breathless

4.  Bubba the Bully

5.  Beth the Beauty

First:

Majority vote rule:  vote for one - your favorite.

(assume the votes are tallied)

Second:

Point voting.  Rank order your preferences.  Top preference will get 5 points, second preference will get 4, etc.

(assume the votes are tallied)

Someone wins in each case.  Do you think one voting method is better than the other?  If so, why?  Explain.

3.  The median voter model is simple yet very descriptive of majority rule elections.  The model concludes that in a representative democracy majority rule decision making tends to select the outcome most preferred by the median voter.  It illustrates why, in democratic politics, all candidates tend to have similar views, and when they do not, why extreme candidates cannot win elections.

a.   Can it offer an explanation for why the United States has only two major political parties in a winner-take-all democracy.  Using the median voter model, explain why (see what you come up with)!  If you can – use the population distribution diagram we used in class (with right or conservative on the right and left or liberal on the left).

Hint:  In the 1992 presidential election, Ross Perot emerged as a strong third-party candidate, taking about 20 percent of the popular vote.  He didn’t win, Bush didn’t win, Clinton won.

b.  How might the median voter model be criticized?