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67 Cards in this Set
- Front
- Back
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Plurality
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winner takes all
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Majority
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one who wins more then half
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Borda
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ranking votes 4-1 for example, summing them up and
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Condorcet
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who wins the most
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Exhaustive
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eliminating least preferred in rounds (like survivor)
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Approval
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vote for programs that are approved and see who gets most votes
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Characteristics of voting rules
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they are imperfect and subject to manipulation
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Explain what the Clarke Tax is
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structuring a vote in a way that reveals peoples demand preferences/ it expresses dollar preference in voting --> highest dollar preference wins
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Arguments for Clarke Tax
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voters can be penalized up to a full value of a vote~ which is an iincentive not to overstate/understate preferences (should improve efficiency)
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Problems with Clarke Tax
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potential manipulation by claiming false values/ what to do with tax revenues?
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Coalitions
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is a pact or treaty among individuals or groups, during which they cooperate in joint action, each in their own self-interest, joining forces together for a common cause
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Logrolling
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vote trading~ ill vote for your cause if you vote for mine
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what are the implicatons for coalitions and logrolling?
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1. different groups must have net financial gain in order to form effective coalitions 2. there is no movement toward efficiency with logrolling or coalitions
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what is the 'principle of minimum size coalition'?
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coalitions dilute individual group value so you just want to have enough to guarentee a slight victory
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what types of costs do coalitions incur?
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transaction costs
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What is the NO VOICE Assumption?
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when we allow voice in direct government it could take the form of coalitions and logrolling (where there is no improvement in efficiency) OR it could take the form of rent-seeking
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What is the NO EXIT assumption?
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when we allow exit in direct government it can 1. help to align preferences with local decision making results and improve efficiency
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what is the argument for empowering local and state governments?
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allows for exit across localities which can improve efficiency of government decision making
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What is the wicked witch theory of regulation
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popularized by Anthony Downs it was created to apply economic models to representative government in the sense that voters are like consumers looking for the best deal and political groups are like firms that respond to voter desires
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GRAPH
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What are the criticisms of Downs theory?
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it is demand driven and therefore UNDERSTATES the role of politicians and bureaucrats in influencing political outcomes and OVERSTATES the role of voters 2. neglects role of special interest groups and lobbying influence
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What is public choice theory?
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use the model of rationally ignorant voters: P*B + D>C; where P= subjective probability that vote will matter, B= net utility gain if the vote matters, D= private benefits from act of voting, C= cost of voting
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What is the role of politicians?
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if getting reelected is a competitive process then you must focus on political programs that increase net votes in your district to get reelected// the extreme version is vote maximization
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What is the role of interest groups?
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interest groups form to promote a political position
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do interest groups have heavy influence?
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yes! They have a consolidated ability to deliver money and votes - examples of interest groups incluce labor unions, environmentalists, and firms (since they are already organized and financially powerful)
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what is the special interest group effect?
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the combination of rationally ignorant voters, vote maximizing politicians and powerful special interest groups leads to political programs with the following characterisitcs ~ concentrated benefits and dispersed costs
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name examples of the special interest group effect?
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social security, US sugar quota, running up govt debt
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What is rent seeking?
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the idea that firms (and other special interest groups) can use the government to redistribute economic rents to their favor
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What is rent seeking in action?
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special interest groups lobby the government to seek either additional economic rents or protect economic rents
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is rent seeking economically efficient?
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no! because scarce economic resources are being used to lobby government favor
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what does successfu rent seeking lead to?
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additional incentive to rent seek! In order to gain additional rents or maintain existing ones (quotas etc)
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what are the effects of rent seeking?
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the effect of rent seeking is that is provides significant financial support for political candidates that reward rent seekers (which can severely compromise economic efficiency)
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What does the Posner article state?
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it argues that the social cost of monopoly and regulation is more than just the standard deadweight loss- he argues not only is it the deadweight loss but the additional profit or rent acquired through rent seeking that amounts to TOTAL EFFICIENCY LOSS
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what will firms do to get economic rent?
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firms will spend up to the economic rent to secure it
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GRAPH
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What social costs does Posner touch on?
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social cost of monopoly may be high and therefore strong antitrust enforcement may be needed// also the social cost of regulation nad government granted monopolies can be very large and deter economic growth
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does the special interest group effect and rent seeking mean that public choice theory predicts short sighted and ill advised political decisions will lead to self destruction?
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some would say yes-- social security and national debt and major problems that are not being corrected for.
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what remedies does posner suggest to prevent economic self destruction?
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constitutional restrictions on political behavior// cultural factors that lead to voters not being rationally ignorant// indeological shift (like Reagan era)
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What is Stigler theory?
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it is one of the first economic theories of regulations that suggests that firms being regulated are able to influence the nature of regulations
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what is capture theory (under Stigler)?
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an extreme version of Stiglers theory that suggests that firms being regulated 'capture' the regulators such that regulations are put forth to protect and enhance industry profits
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What are ways that regulations can benefit firms?
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direct cash subsidies// limit/block entry of competitors (by tariffs, quotas, etc)// directly raise price/profitability// raise costs of substitute products
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What are Stigler's bottom line assertions?
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regulation can be viewed as an accomodation of businesses and special interest groups // regulations can often be explained by the nature of the economic benefits // regulations can also make for some strange bedfellows (e.g. outlawing the production of alcohol in the south helped bootleggers and baptists
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what was wrong with Stigler's theory
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it did not explain a lot of pro-consumer, pro taxpayer legislation such as deregulation, tax cuts etc
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What is the Peltzman theory of regulation?
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Peltzman attempted to formalize Stigler's model and apply it to all types of special interest groups
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what is the peltzman equation and describe each variable
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M=[n*f]-[(N-n)*h]~ where n= the number of potential beneficiaries, f = the probability that beneficiaries will grant financial and political support to the regulator, N=size of the group, h=probability that non-beneficiaries will actively oppose regulator, N-n = # of beneficiaries
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What are the support and opposition functions in relation to the Peltzman model?
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the support function is f=f(g) and the opposition function is H=h(t,z)
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Give a summary of the Peltzman theory
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it formalizes the notion of special interest effect in context of understanding economic regulations// seeks to identify economic impact on various special interest groups impacted by regulations
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What is BRINGING HOME THE BACON?
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an alternative model of regulation focusing on bringing home benefits to representatives localities
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what are the implications of Bringing Home the Bacon?
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you compete to get popular projects in your geographic area// compete to NOT get unpopular projects in your area
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What is the difference in ideology of representatives and their constituents?
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representatives tend to have more polarized views compared with their constituents
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What is the median voter model?
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representatives want to move toward the middle but they must satisify extreme tails
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What is a characteristic of special interest groups and their members
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they tend to have extreme ideologies bc members have most to gain or lose from political outcomes
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What are the 3 fundamental differences between administrative governmental agencies and private firms?
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1. information (private firms have info on prices and profits, govt do not), 2. incentives (private firms have incentive to max profits, whereas govt agencies want to max budgets, 3. competition (private firms have it and govt agencies generally do not)
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What are the 3 main assumptions of bureaucratic behavior in the Niskanen Model?
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1. bilateral monopoly, 2. asymmetric information, 3. budget maximization
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what are the predictions of Niskanens model?
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1. govt agencies will typically get budgets that lead to overproduction of administrative services 2. govt agencies will typically operate inefficiently
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what are the policy implications of Niskanens model
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the potential for administrative inefficiencies should be carefully considered in weighing benefits and costs of new potential govt programs// improved bureaucratic incentives can potentially improve admin performance// there is potential benefit in having competing government agencies
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What is the Lindsey Model?
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a criticism of Niskanen model in the sense that the Lindsey model does not accept the notion that legislators will be passively taken advantage of by administrators
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what other important aspect of Lindsey model should be stated?
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EFFICIENT ADMINISTRATIVE BEHAVIOR is in legislators interest since it frees up government resources for additional use
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What is the concept of 'Government enterprise' under Lindsey Model?
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govt agencies are monitored and rewarded by legislators based on their ability to productively use scarce resources // Productivity is defined as 'social net income' generated relative to opportunity cost of resources by administrators // legislator is constrained due to info limitations
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what are the predictions of Lindsey model?
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govt agencies will have an incentive to maximize their perceived level of productivity (overemphasize on 'measureable' outcomes as compared to 'immeasureable' outcomes (like # of cases won at FTC)
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what comparative advantage does will govt agencies have over private firms?
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lower average costs to produce measureable stuff (i.e. VA hospital example versus private hospital)
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what is the principal agent theory?
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agents are contracted to act on behalf of principals but there are potential divergent incentives and asymmetric information (ex: firma managers and stockholders)
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what types of mechanisms help to align agents incentives to that of the principal?
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contractual (i.e. stock options for firms manager…)
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how else can principal -agent theory be applied?
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it can be applied to legislators and administrators (screening and selection of agent)
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the most efficient rule
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minimizes total costs
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