Economics 849 Final

Prof. Bryan Caplan

Fall, 2002




        You have 2 hours, 45 minutes to complete this exam.

        Write all answers directly on the exam.

        You may use any books, notes, or other materials that you wish, but avoid spending too much time on any one question.

        Partial credit may be awarded on all questions.

        The maximum possible number of points is 200.

        You should have 7 pages, counting this one, PLUS one page with a regression.


Part 1: True, False, and Explain

(10 points each - 2 for the right answer, and 8 for the explanation)

State whether each of the following six propositions is true or false. In 2-3 sentences (and clearly-labeled diagrams, when helpful), explain why.


1. T, F, and Explain: According to Landsburg, theft is just a transfer, and therefore has no cost in terms of efficiency.











2. T, F, and Explain: The deadweight costs of taxation are minimized at the peak of the Laffer curve.












3. More educated voters are usually more politically informed.


T, F, and Explain: As the education of the electorate falls, the optimal severity of punishment for corruption rises.












4. Consider Cooter's bargaining model of government with multiple branches. Suppose we modify the current U.S. government by adding a third legislative chamber of government, N. On the question of the size of government, $N<$L<$U, and $N0<$L0<$U0.


T, F, and Explain: The size of government will definitely shrink.













5. T, F, and Explain: Wittman's arguments hinge critically on the SIVH.












6. Caplan argues that at least after adjusting for self-serving and ideological bias, belief gaps between economists and the public should be interpreted as irrationality on the part of the public.


T, F, and Explain: One implication is that conservative Republicans are less irrational than liberal Democrats.







Part 2: Short Essays

(20 points each)

In half a page each, answer all of the following questions.


1. The Constitution allows the number of Supreme Court justices to be changed by an ordinary act of Congress. Why then does the Supreme Court have any significant ability to "check and balance" the other two branches of the government?

















2. Considering all that you have learned in the course, what do you think would happen if the federal income tax deductibility of state and local taxes in the United States were eliminated? Discuss BOTH tax incidence and the political equilibrium.



















3. The SAEE asks respondents the following question:


"Do you expect your children's generation to enjoy a higher or lower standard of living than your generation, or do you think it will be about the same?"


0="Lower"; 1="About the same"; 2="Higher"


The next page shows a regression of responses to this question on respondent characteristics. Carefully explain the ways in which the results are empirically typical of public opinion in general and beliefs about economics in particular. Are there any exceptions to the usual rules? If so, what are they? What is your best guess for why they arise?


4. What main pieces of evidence does Peltzman provide in favor of the SIVH? Does he misinterpret his evidence, or do you need individual-level data to detect the empirical weaknesses of the SIVH?






















5. Corporations are ultimately run by voters, although voting is proportionate to the your number of shares. Does Brennan and Lomasky's expressive voting theory have any relevance to corporate governance? Why or why not?



















6. Caplan ("Sociotropes, Systematic Bias, and Political Failure") offers a welfare-ranking of democracy conditional on voter motivation and cognition. Is his ranking correct? Why or why not?




















7. A common objection to free-market anarchism is that it assumes too high a level of rationality on the part of the general public. How might Caplan respond to this objection? Would he be right? Why or why not?