Political Economy

Front 1

Direct democracy

Back 1

Whereby voters directly cast ballots in favor of or in opposition to particular public projects.

Front 2

Representative democracy

Back 2

Whereby voters elect representatives, who in turn make decisions on public projects.

Front 3

Government failure

Back 3

The inability or unwillingness of governments to appropriately address market failures.

Front 4

Lindahl pricing

Back 4

An approach to financing public goods in which individuals honestly reveal their willingness to pay and the government charges them that amount to finance the public good.

Front 5

Marginal willingness to pay

Back 5

The amount that individuals are willing to pay for the next unit of a good.

Front 6

Benefit taxation

Back 6

taxation in which individuals are taxed for a public good according to their valuation of the benefit they receive from that good.

Front 7

Efficient level of public goods provision

Back 7

The point at which the sum of the social marginal benefits of the public good is set equal to social marginal cost.

Front 8

What are the problems with Lindahl Pricing?

Back 8

1) Preference Revelation Problem
2) Preference Knowledge Problem
3) Preference Aggregation Problem

Front 9

Preference Revelation Problem

Back 9

People have an incentive to lie about what they're willing to pay

Front 10

Preference Knowledge Problem

Back 10

People don't know the real value for the public good.

Front 11

Preference aggregation problem

Back 11

How can government aggregate individual values into a social willingness to pay in order to trace out their willingness to pay curves and find the correct level of public goods provision.

Front 12

Referendum

Back 12

A measure placed on the ballot by the govenrment allowing citizens to vote on state laws or constitutional amendments that have already been passed by the state legislature.

Front 13

What are the types of referendum?

Back 13

1) Legislative referendum
2) Popular referendum- permitted by 24 states and allows voting of items that collected large amounts of votes to get on ballot.

Front 14

Voter initiatives

Back 14

The placement of legislation on the ballot by citizens.

Front 15

Majority voting

Back 15

The typical mechanism used to aggregate individual votes into a social decision, whereby individual policy options are put to vote and the option that receives the majority of votes is chosen.

Front 16

What aggregation mechanisms must be satisfied in majority voting? (When does it work)..

Back 16

1) Dominance: majority
2) Transitivity: a>b>c
3) Independence of irrelevant alternatives: another choice will not affect ranking of preferences

Front 17

Cycling

Back 17

When majority voting does not deliver a consistent aggregation of individual preferences.

Front 18

Arrow's impossibility theorem

Back 18

There is no single decision (voting) rule that converts individual preferences into a consistent aggregate decision without either a) restricting preferences or 2) imposing a dictatorship.

Front 19

Single peaked preferences

Back 19

Preferences with only a single local maximum peak, so that utility falls as choices move away in any direction from that peak.

Front 20

Median voter theorem

Back 20

Majority voting will yield the outcome preferred by the median voter if preferences are single-peaked.

Front 21

Median voter

Back 21

The voter whose tastes are in the middle of the set of voters.

Front 22

Public choice theory

Back 22

School of thought emphasizing that the government may not act to maximize well-being of its citizens

Front 23

Government failure

Back 23

The inability or unwillingness of the government to act primarily in the interest of its citizens.

Front 24

Bureaucracies

Back 24

Organizations of civil servants, such as the US dept of education, that are in charge of carrying out the services for government.

Front 25

Natural monopoly

Back 25

A market in which, because of the uniformly decreasing marginal cost of production, there is a cost advantage to have only one firm provide the good to all consumers in a market.

Front 26

Contracting out

Back 26

An approach through which the government retains responsibility for providing a good or service, but hires private sector firms to actually provide the good or service.

Front 27

Corruption

Back 27

The abuse of power by government officials in order to maximize their own personal wealth or that of their associates.