Name:_______________________

Economics 849 Final

Prof. Bryan Caplan

Fall, 2001

Instructions:

·        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.

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.  There is a large empirical literature on happiness, which finds that at least in the richest half of the world's countries, higher income does not make people happier.

T, F, and Explain:  This suggests that the status quo in rich countries is roughly Kaldor-Hicks as well as Pareto efficient.

2. T, F, and Explain:  The Miracle of Aggregation does nothing to solve democracy's intransitivity problems.

QUESTIONS 3 and 4 refer to the following information:

Suppose there are two states, West and East, and both are allowed to tax truckers to ship goods from one state to the other.  The quantity of trucking services supplied is given by:

Qs=100-(tW+ tE), where tW is West's tax and tE is East's tax.

3. T, F, and Explain:  If West and East independently maximize their own tax revenue, the sum of all taxes will be 200/3.

4.  Suppose instead that voters in West and East care about each other, so they maximize joint tax revenue.

T, F, and Explain:  The total tax burden rises to 300/4=75.

5.  T, F, and Explain:  The strong effects of ethnicity and gender on party identification show that the SIVH works to at least a moderate degree.

6.  In "The Logic of Collective Belief," Caplan analyzes the rationality of politicians as well as the rationality of voters.

T, F, and Explain:  Caplan concludes that politicians, unlike voters, are likely to have unbiased estimates of the effects of various policies.

Part 2: Short Essays

(20 points each)

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

1.  How does the recent presidential election (where the final vote counts were sometimes only a few hundred apart) suggest that you should update your probability of decisiveness?  Discuss using the standard probability of decisiveness formula.

2.  Suppose someone says: "Perhaps the rich have no self-interested reason to oppose high taxes because the general public bears the incidence."  What assumptions about elasticities would they have to make to sustain this position?

3.  Is the empirical evidence on the SIVH relevant to economic arguments about optimal federalism and the "race to the bottom"?  Explain.

4.  Give examples from Wittman's Myth of Democratic Failure of (a) a sound criticism of standard public choice; (b) a valid criticism of standard public choice; (c) and an invalid criticism of standard public choice.  Defend your choices.

5.  Caplan thinks that politics and markets are extremely different due to voters' low probability of decisiveness.  What are the main contrasts between politics and markets that Caplan attributes to decisiveness?  Is there an alternative explanation?  Explain your answer.

6.  Pick one political failure that you think is serious.  Which provides a better explanation: expressive voting or rational irrationality?  Carefully distinguish the two hypotheses and explain your conclusion.

7.  How might Cowen respond to Caplan and Stringham?  Construct the most convincing critique of Caplan and Stringham that you can.