Name:_______________________

Economics 854 Final

Prof. Bryan Caplan

Spring, 2014

Instructions:

· You have 120 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. Politicians are risk-neutral.

T, F, and Explain: If a “cruel and unusual punishment” clause caps voters’ maximum punishment of politicians at $50,000, rational voters will prefer to vote against 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 promises the tax rate that maximizes the average income of their group.

T, F, and Explain: The equilibrium tax rate will equalize group incomes if less than half of voters belong to the richest group.

3. “But, obviously, citizens will react to the costs they bear only insofar as they are aware of them. The possibility of driving a wedge between actual and publicly perceived costs creates an irresistible temptation for governments pursuing high-cost policies in times of national emergency. Except perhaps where lives are being lost, no costs are so easily counted as pecuniary costs... It therefore behooves any government wishing to sustain a policy that entails suddenly heightened costs to adopt devices to substitute nonpecuniary for pecuniary costs. (Higgs, “Crisis, Bigger Government, and Ideological Change”)”

T, F, and Explain: Wittman would accuse Higgs of assuming “a serious lack of competition” under democracy.

4. T, F, and Explain: Buchanan’s appeal to the “veil of ignorance” at the constitutional level of politics is consistent with his belief in the SIVH.

Part 2: Short Essays

(20 points each)

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

1. Environmental regulators usually adopt “command-and-control” remedies for pollution instead of pollution taxes or tradeable permits. If you were Donald Wittman, how would you explain this fact?

2. “Whether a political or religious teaching is to win wide acceptance depends almost exclusively on three factors.” (Mosca, The Ruling Class) Use Mosca’s analysis to explain the “wide acceptance” of either liberalism or conservatism in the modern United States.

3. Suppose Communist China switched to democracy. Using everything you have learned, predict what major policy changes would be adopted during the first five years of Chinese democracy. Carefully explain your answer.

4. Say something new and insightful about the economics of anarchy.