Economics 849 Final

Prof. Bryan Caplan

Fall, 2006




        You have 2 hours, 30 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 150.

        You should have 6 pages, counting this one, PLUS two pages with regressions.


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. Suppose someone proposes taxing education in order to reduce wasteful signaling.


T, F, and Explain: This would be less efficient than the status quo unless education is 100% signaling.












2. T, F, and Explain: Governments that strictly follow the Ramsey rule for income taxation will end up at the peak of the Laffer curve.











3. Suppose that all voters have multi-peaked preferences, and transactions costs are zero.


T, F, and Explain: Log-rolling may be unable to eliminate social intransitivity.









4. T, F, and Explain: Levitt ("How Do Senators Vote?") provides evidence that voters make little use of Beckerian punishment strategies.














5. Caplan argues that there is a great deal of empirical evidence that democracy works worse than other public choice economists realize.


T, F, and Explain: Caplan admits, however, that there is one reason why public choice economists underestimate how well democracy works: their belief in the SIVH.












Part 2: Short Essays

(20 points each)

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


1. For U.S. national elections, what is the highest probability of decisiveness you would be willing to defend? Explain your reasoning, and provide calculations.





















2. There are some issues where the SIVH works. There are also some issues where the SIVH works negatively the greater the financial incentive to favor a policy, the more opposed people on average become. Give an example of each. Then present a plausible hypothesis about when these patterns are likely to emerge.

















3. The General Social Survey asks respondents the following question (govtpow): "And what about the federal government, does it have too much power or too little power?" The possible responses are "far too much power"=1, "too much power"=2, "about the right amount of power"=3, "too little power"=4, and "far too little power"=5.

Two regressions (see the next two pages) were run to predict responses to the govtpow question. The definitions of the independent variables are:

polviews1: an ideological scale from -3 to +3, with +3 being most conservative

educ: years of education

male: =1 if male, 0 if female

realinc: real income


Is there anything unexpected about the results? What is the rationale for switching from the first specification to the second? Are the results consistent with this rationale? Carefully explain why or why not.




























4. Caplan (The Myth of the Rational Voter) discusses "mixed policy/outcome preferences." How does the mechanism he discusses differ from "retrospective voting"? Which mechanism is more empirically relevant? Explain your answer.























5. Argue, as persuasively as possible, that free-market anarchists are rationally irrational.