Prof. Bryan Caplan

Econ 410


HW#5  (Answer any 9 questions.  Please TYPE all answers).


1.  Describe a specific political failure that Wittman would argue depends on the assumption of "extreme voter stupidity."  Explain his argument.  (3-4 sentences)


Wittman thinks that the usual story of "pork barrel politics" assume extreme voter stupidity.  If voters can give politicians credit for bringing money home, why don't they take credit away for giving money to other districts?  And if projects are really inefficient, why wouldn't voters prefer cash to in-kind "gifts"?


2.  Describe a specific political failure that Wittman would argue depends on the assumption of "serious lack of competition."  Explain his argument.  (3-4 sentences)


Wittman doubts stories where politicians have a lot of slack to pursue their personal agendas.  If they tried, he says, rival politicians would spring up and challenge them in the next election.  Even when candidates run unopposed, says Wittman, incumbents still have to worry about potential competition.


3.  Describe a political failure that Wittman would argue depends on the assumption of "excessively high negotiation/transfer costs."  Explain his argument.  (3-4 sentences)


Wittman considers the case of zoning regulation that imposes big burdens on a few developers to provide small benefits to numerous voters.  If the loses to the former exceed the gains to the latter, Wittman says, there is every reason to negotiate a new deal to tax developers and transfer the gains to the majority, thereby creating majority support for the efficient outcome.  As long as transactions costs are plausibly low, this should happen.


4.  "Government has grown to an enormous size because voters have no idea what is going on, and politicians and special interests do."  How would Wittman respond to this complaint?  (3-4 sentences)


Wittman would contest this on several levels.  For one thing, he would deny that voters have "no idea what is going on."  They may not know the details, but they have a rough-and-ready guess.  Even if they were ignorant, just like prospective buyers at a used car dealership, voters would have simple strategic responses.  They could always vote for the most anti-government candidate until government drastically shrank, to take one example.


5.  Pick the worst case of political failure you can think of.  How would Wittman respond to your example?  (3-4 sentences)


I'd pick the Great Depression, where massive unemployment was exacerbated by government efforts to push real wages up even higher.  Wittman might just appeal to random error ("Once in a century, government is bound to make a big mistake").  Alternately, he might emphasize inequalities in democratic bargaining power (unions had more votes, etc.) and argue that the result was an efficient exercise of unions' superior political muscle.


6.  Suppose the per-capita instrumental value of policy A is -$1000, the expressive value of A is +$10, the instrumental value of B is +$1000, and the expressive value of B is -$10.  What is the crucial variable that determines which policy a voter will select?  When will the voter be indifferent between A and B?  Solve mathematically.


The crucial variable is p, the probability of decisiveness.  The voter is indifferent when:












7.  True, False, and Explain: Markets, unlike democracy, ignore the importance of expressive value. (2-3 sentences)


FALSE.  Markets give full weight to expressive value; if consumers will pay for "image," markets supply it.  The key difference is that democracy does not put much weight on instrumental value.


8.  Select a specific environmental problem.  How would expressive voting theory explain public opinion and policy regarding this problem? (3-4 sentences)


Take carpooling restrictions, designed to reduce smog and congestion.  These are far more popular than simply selling special peak-load driving permits, or charging drivers based on their emissions.  Expressive voting theory would say that people feel more "concerned" and "socially aware" when they advocate burdensome carpool rules instead of simple, price-based solutions.


9.  Give contrasting examples of rational ignorance and rational irrationality.


Rational ignorance: Paying no attention to foreign aid programs, but having a roughly accurate estimate of their average size


Rational irrationality: Exaggerating foreign aid into one of the largest items in the budget.


10.  Select a popular economic fallacy.  How does the popularity of this fallacy affect actual economic policy? (3-4 sentences)


One popular fallacy is the idea that there is no connection at all between wages and employment.  This affects policy in many ways: Any regulation that "helps workers" enjoys considerable popularity, with the employment effect largely neglected.


11.  Explain how voting for counter-productive policies (like the minimum wage) can be privately optimal but socially inefficient. (2-3 sentences)


A person feels good voting for the minimum wage; in their own minds, it makes them a wonderful, compassionate friend of the poor.  If the minimum wage passes, the poor are actually worse off, a result no one wants.  But an individual has such a low probability of decisiveness, they are likely to prefer to believe they are helping the poor even if they are slightly increasing the probability of the opposite happening. 


12.  Why, according to Caplan, does democracy fail to compensate for - or counter-act -expressive voting and rational irrationality?  (3-4 sentences)


Caplan argues that politicians play to their audience.  If people are irrational, expressive voters, trying to "bring them to their senses" is unlikely to do anything more than alienate them.  Just like a UFO-abduction book writer needs to play to the delusions of his readers, politicians need to grandstand and make stupid soundbytes to win elections.