Name:_______________________

Economics 854 Final

Prof. Bryan Caplan

Spring, 2010

Instructions:

· You have 100 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 120.

· You should have five 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. Suppose that politicians earn $1000 when they vote for a program in the public interest, but earn $10,000 when they vote for a program that benefits only a special interest. Half of all programs are public-interested and benefit each voter by $1000; the rest are special interested and hurt each voter by $2000. Voters know how many “yes” votes their representatives cast, but only have a 5% chance of discovering whether a piece of legislation was public- or special-interested.

T, F, and Explain: If a “cruel and unusual punishment” clause caps voters’ maximum punishment of politicians at $50,000, voters will prefer to vote for candidates who cast a higher fraction of “yes” votes.

2. Suppose voters in a Meltzer-Richards framework are purely group-interested; they vote for whichever candidate maximizes the average income of their group.

T, F, and Explain: If all groups have equal average incomes, the equilibrium tax rate will be zero; otherwise, the equilibrium tax rate will be positive.

3. "Donald Wittman (1995) has recently argued that the neoclassical model of political processes purports to demonstrate democratic inefficiencies, but when pushed to its logical conclusion shows the opposite: democratic bargaining, like economic bargaining, yields the best possible outcome given the constraints... [I]f the full costs of any action are taken into account - including the costs associated with achieving an alternative arrangement of affairs - then at any point individuals are doing the best they can given the situation."  (Peter Boettke, "Is There An Intellectual Market Niche for Austrian Economics?")

True, False, and Explain: Boettke understates the thesis of Wittman's The Myth of Democratic Failure.

4. T, F, and Explain: Voter irrationality logically implies political slack.

Part 2: Short Essays

(20 points each)

In 6-8 sentences, answer all of the following questions.

1. Pretend you’re Donald Wittman. Write a half-page summary of your new book, The Myth of Dictatorial Failure. Be as persuasive and true to Wittman as possible.

2. Building on Cowen’s “Does Technology Drive the Growth of Government?,” predict how the size and scope of the U.S. government will change over the next century. Defend your answer.

3. Analyze the global financial crisis of 2008 using Caplan’s “Idea Trap” model. What major patterns does the model correctly predict? What are the main anomalies?

4. “Once adopted, free-market anarchism would work better than futarchy, but futarchy is more likely to actually be adopted.” Do you agree or disagree? Explain your answer.