Economics 854 Midterm

Prof. Bryan Caplan

Spring, 2011

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. Consider a simple median voter model.

T, F, and Explain: Threatening to vote for a third party candidate is always counter-productive, but permanently switching to a third party has no effect because you’re simply “throwing your vote away.”

FALSE. Threatening to vote for a third party candidate may persuade “your” party to move closer to your view, reducing its probability of victory but increasing your satisfaction with its policies if it wins. So it’s not “always” counter-productive. Permanently switching to a third party, in contrast, just pushes the median voter in the opposite of your desired direction – and is therefore counter-productive in a simple median voter framework.

2. T, F, and Explain: Meltzer and Richard (“A Rational Theory of the Size of Government”) deny that Wagner’s Law logically follows from their model.

TRUE. Wagner’s Law – that government’s share of income rises as income increases – does not follow from their model. But a modified version – where bigger government is driven by increasing disparity between mean taxpayer income and median voter income – does follow from their model.

[Many students gave essentially this answer, but said FALSE. I gave full credit anyway. But note that if M-R supports only a modified version of Wagner’s Law, then the standard version of Wagner’s Law does not logically follow from M-R.]

3. T, F, and Explain: There is no way to empirically distinguish between self-interested, group-interested, and sociotropic voting.

FALSE. While no empirical methods are perfect, credible tests simply require multiple regression of policy preferences/votes on distinct measurements of all three kinds of traits. For party identity, for example, you might get measures of income (self-interest), race (group-interest), and ideology (sociotropic). As long as the measures are imperfectly correlated, you can distinguish the three hypotheses.

Question 4 refers to the following regression of number of children (CHILDS) on ideology (POLVIEWS, 1=”extremely liberal”, 7=”extremely conservative”), and years of education (EDUC). Data come from the GSS.

4. T, F, and Explain: Given this regression, Alford et al.  (“Are Political Orientations Genetically Transmitted?”) suggests that in the long-run, policies will become more socially conservative but less economically conservative.

FALSE. In the long-run, policies will become more socially conservative, but we can’t predict the future path of economic conservatism. Alford et al show that policy views are almost always heritable, so current fertility predicts future policy. Since more educated voters are more socially liberal and more economic conservative, the increasing share of less-educated conservatives in the population pushes unambiguously toward more social conservatism. For economic conservatism, however, the net effect of rising conservatism and falling education is ambiguous.

Part 2: Short Essays

(20 points each)

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

1. Turn-out in national elections far exceeds turn-out in purely local elections. Write a simple equation defining the costs and benefits of voting. Then use empirically plausible estimates of the values of the key variables in your equation to explain why lower turn-out in purely local elections is so puzzling. What is the best way to resolve the puzzle?

A simple model: People vote as long as pD-C>0, where p=probability of decisiveness, D=difference in value between candidates, and C is the cost of effort. Since p declines very rapidly as N increases, it seems like people should be far more willing to vote in local elections than national elections - even if national D is considerable bigger and national C is much smaller.

Since plausible values of D and C are unlikely to change this result, we need a new model. The simplest adds a civic duty term that doesn’t depend on p: people vote as long as pD-C+duty>0. Now we simply need to add the plausible assumption that D is several times (not millions of times) bigger for national elections, and we’re home.

2. Is there any plausible downside if voters use Beckerian punishment strategies to discipline politicians? If so, give details. If not, why not?

There are multiple problems:

a. If voters want bad policies, Beckerian punishments make it harder for politicians to avoid giving voters the bad policies they’re asking for.

b. If there are false positives, Beckerian punishments will reduce the supply of politicians – especially honest politicians with a strong sense of shame.

c. If there is divided government, Beckerian punishments require harsh punishment of many innocent parties – and may even give strategic incentives to threaten to deliberately cause bad results.

d. If D is capped, Beckerian punishments give bad marginal incentives, since the punishment for massive fraud will be no greater than the punishment for petty fraud.

3. Use the mainstream and polarization effects (Zaller, The Nature and Origin of Mass Opinion) to explain why there was a strong movement against the Iraq War, but not to Obama’s intensification of the war in Afghanistan. What would Zaller predict about the strength of resistance to American military action against Libya?

The mainstream effect says that when there is elite consensus in favor of X, public support will increase as awareness increases; but when there is elite disagreement about X, public support will move in opposite directions as awareness increases. For the Iraq War, elite disagreement soon emerged, leading to a strong antiwar movement until Obama’s election. For Afghanistan, in contrast, there is bipartisan support, so the is little public resistance. For Libya, there seems to be elite consensus; conservatives are rarely less hawkish than Democrats. So Zaller’s model predicts little resistance. One possible scenario, though, is that Obama could become the next Lyndon Johnson – liberal Democrats will turn against his approach, once again sparking antiwar protests against a Democrat president.

4. Suppose four states engage in Tiebout competition for a population that looks exactly like the current population of the United States. What are the main differences between populations of the four states likely to be? What are the main policy differences between the four states likely to be? Carefully defend your answer using empirical public opinion research.

With Tiebout competition, movement is costless, so we should expect much stronger segmentation than exists in the real world. If people’s main residential preference is to live near people who share their political views, we should expect the states to divide along two main axes of disagreement – ideology and education. Voters will choose between relatively liberal, conservatism, populist, and libertarian states. One might argue, though, that when people choose where to live, jobs and quality of life are much more important than politics. If so, we’d see four different economically stratified states, with richer states imposing residency and zoning requirements to keep out poorer voters. As long as Tiebout competition weren’t constrained by electoral politics, I’d predict the income-stratification equilibrium. Wealthy liberals may vote for redistribution, but they still prefer to live around other rich people.