Prof. Bryan Caplan

Econ 410


HW#2 Answer Key


1.  What probability would you assign to each of the following?

            a.  You get an A in this class.


If I were in this class, I'd give it 97%.


            b.  You become best friends with someone you meet in this class.


I'd give it about 1-in-8000.


            c.  You live to be 90 years old.




            d.  You oversleep on the day of the midterm.




2.  Diagram each of the following for an individual, and note his or her equilibrium level of political knowledge:

            a.  The MC of acquiring political knowledge is always positive and the benefits are always 0.


The equilibrium knowledge level is 0.











            b. The MC of acquiring political knowledge is negative at first, and the benefits are always 0.


The equilibrium knowledge level is positive.






            c.  The MC of acquiring political knowledge is always positive, but the benefits are positive at first.


The equilibrium knowledge level is positive.











3.  Name what are, for you, the five most memorable actions Clinton took.  How many of these were, in your judgment, important policy decisions?  Why the contrast? (1-2 sentences)


The most memorable actions: the Lewinsky testimony, Paula Jones case, welfare reform, war in Kosovo, invasion of Haiti.  Only welfare reform and the Kosovo war look like important policy decisions to me.  The Lewinsky and Jones cases, however, had a lot of memorable personalities, drama, revelation of secrets, sordid details, and so on.  The Haiti invasion was memorable mainly because the events dragged out so long, and it became such a symbolic issue for so many.


4.  Diagram the public goods nature of political information.  Be careful to draw the S curve, the D curve, and the SB curve in a sensible way.


Some political knowledge is hard to avoid - you learn a little just by overhearing conversations and so on.  So the S curve should show a positive quantity when the price is 0.  Similarly, there are mild private incentives to acquire political information - at minimum, to avoid looking stupid.  So the D curve should lie above the origin.  Finally, the SB curve should lie well above the demand curve - things would work better if voters were better-informed.











5.  If the entire U.S. population were given a test of general political knowledge, what percentile do you think you would get?  Why do you think you would do better or worse than average (50th percentile)? (1-2 sentences)


I would probably score about the 97th percentile.  Questions about current events would drag my score down a bit, but I would do very well on Constitutional, historical, and foreign policy questions.  Given my education level (and male gender), the empirical literature on political knowledge suggests that I would score above average, but even so, I'm probably an "outlier" - probably because I've spent a lot of time studying these topics.


6.  Give an original real-world application of the theory of optimal punishment. (3-4 sentences)


It is costly for a professor to catch people cheating on the midterm - there is a low p of detection.  But I try to balance this out by harshly punishing students that I catch cheating.  I don't just mark them wrong on the questions where they cheated; I give them an F on the whole exam, or the whole class, or ask for them to be expelled.  Cheaters that I catch are much worse off than if they hadn't cheated at all.


7.  Throw 2 6-sided dice and add them.  Then throw 8 6-sided dice and add them.  How far off from average were your two rolls in percentage terms?  How does this illustrate the Principle of Aggregation?  (Example: If an average roll were 8, and you got a 6, you were (8-6)/8=25% off from average in percentage terms).


The average sum of 2 6-sided dice is 7, because each die has an average of 3.5.  I rolled a 9 - 28% above average.  The average sum of 8 6-sided dice is 42.  I rolled a 46 - 9.5% above average.  This illustrates the Principle of Aggregation well - the percent deviation from average was smaller when I rolled more dice.


8.  Name one political issue where you think random errors largely "cancel each other out."  If a referendum were held on this issue, how would the vote shares and outcome differ from a world with perfect information? (2-3 sentences)


Random errors about the benefits of new air quality regulations might cancel out.  Some people would expect them to give dramatic improvements, others to have no effect at all; the true answer is probably in the middle.  With perfect information, a referendum on further regulation might fail with 80% against, whereas in the real world of imperfect information it might fail with only 55% against.


9.  Suppose that 80% of voters are tenants, and 20% are landlords.  Rent control makes each landlord $1000 poorer and each tenant $100 richer.  Carefully explain why the median voter result (with selfish voting) will be inefficient.  (2-3 sentences)


If there are 100 people total, then the total benefit to tenants is 80*$100=$8000, and the total loss to landlords is 20*$1000 is $20,000, for a net social benefit of -$12,000.  This is a standard example of an inefficient policy.  But the median voter is a tenant, and gains $100 if the measure passes, so with selfish voting, rent control wins.


10.  In the preceding example, what would the efficiency effect of a 90% super-majority rule be, if there is initially no rent control?  (2-3 sentences)


A super-majority rule would be efficiency-enhancing because it would prevent rent control from happening.  With a 90% super-majority, rent control would fail (landlords are 20% of the population, and they would all oppose it).


11.  How could log-rolling be efficiency-enhancing?  How could it be inefficiency-enhancing?  Give two contrasting examples and explain the difference. (3-4 sentences)


Log-rolling could be efficiency-enhancing if it got rid of a popular but inefficient policy.  For example, suppose the net benefits of marijuana prohibition are -$9 billion - non-users benefit by a total of $1 B from banning them, users suffer by $10 B.  Marijuana smokers could agree to $2 B in taxes on marijuana cigarettes in exchange for legalization.  Log-rolling could be inefficiency-enhancing if it led to the creation of two inefficient programs.  Senator A might be one vote short of a museum (net social value of -$10 M), Senator B might be one vote short of a road (net social value of -$10 M).  If each agrees to vote for the other's project, they both pass, for a net loss of -$20 M.


12.  According to the SIVH, who seems likely to favor and oppose the following programs?

            a.  Welfare


The poor, especially those who don't work and have many children, would be expected to support it; the rich, especially those who work and don't have many children, would be expected to oppose it.


            b.  Foreign aid


U.S. exporters and development bureaucrats would be the main domestic proponents; U.S. taxpayers would be the opponents.


            c.  Environmental protection


In favor: People in high-pollution areas, existing land-owners, environmental consultants.  Opposed: People in low-pollution areas, developers, new home-buyers, investors and workers in affected industries.


            d.  NAFTA


In favor: High-skilled workers, the retired, families in need of nannies.  Opposed: Low-skilled workers, young people, the childless.


13.  Name one issue where, from your own personal experience, the SIVH works reasonably well, and another where it works poorly.  Can you think of any fundamental way that these issues differ? (3-4 sentences)


The SIVH works well for smoking, but poorly for foreign policy.  The main difference seems to be that smoking regulations (and smoking) feels personally "intrusive"; the smoke or the regulation is "in your face."  While foreign policy may have much larger effects, these are much more indirect.


14.  What account best describes your political beliefs?  The SIVH?  Sociotropic voting?  Ideological voting?  Group-interest?  Give some specific examples. (1 paragraph)


The ideological hypothesis probably works best for me - I tend to hold the "libertarian view" on just about everything.  The SIVH works very poorly - I favor completely de-funding public education, even though that would put me out of a job.  Group-interest fails for me as well: I don't identify with "my" ethnic, cultural, linguistic, or other group.  Sociotropic voting works a bit better - I do think that most people would be better off if they followed my policy prescriptions.  But you must understand my libertarian ideology perspective to understand why I favor policies that most people would abhor.


 15.  Can you place yourself on a simple liberal-conservative spectrum?  If so, where?  If not, what key elements of your beliefs does this spectrum fail to capture? (1 paragraph)


I would have trouble placing myself on this spectrum.  Liberals would hate my views on regulation and taxes, and conservatives would hate my views on immigration and national defense.  But it would be pretty easy to accurately capture my views by switching to a two-dimensional diagram with separate axes for economic and personal freedom.


16.  Carefully explain why Jane Fonda can be rich, Democratic, and highly selfish at the same time.  What is the expected cost for her if she votes Democratic rather than Republican?  (2-3 sentences)


The answer is that she is - like the rest of us - highly unlikely to cast the decisive vote in an election.  So suppose that she will be worth $200 M under a Republican president and $130 M under a Democratic president.  That $70 M difference must be multiplied by p, her probability of casting the decisive vote.  If p=1-in-70,000,000, for example (a high estimate!), the expected cost of voting Democratic would only be $1.00.  For a multi-millionaire, that is a pittance.