Economics 854
Midterm
Prof. Bryan
Caplan
Spring, 2012
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. T, F, and
Explain: The deadweight cost of a tax on pollution is always zero.
FALSE. A tax on pollution can reduce deadweight cost. But the deadweight cost of a tax on
pollution only falls to zero IF (a) the tax brings the market level of output
into equality with the efficient level of output, and (b) if there are no
administration or evasion costs of the tax. Even ignoring (b), a pollution tax can
actually increase deadweight costs if
the tax is high enough to reduce output below its socially efficient level.
2. Suppose 60% of college graduates favor legalizing gay marriage, while 60% of non-college graduates oppose legalizing gay marriage. College graduates are one-third of the voting population.
T, F, and Explain:
If college graduates receive 1.1 votes, the Median Voter Theorem implies
that gay marriage will be legalized.
FALSE. Since non-college graduates outnumber
college graduates 2:1, and the two groups’ support for legalization are
reversed (40/60; 60/40), college graduates would need TWO votes each to get 50%
support for legalization. With 1.1
votes per college grad, and 300 voters, there would be 100*.6*1.1+200*.4=146
votes in favor of legalization and 154 against.
3. “Politically, selection is far more important than adaptation.” (Poole and Rosenthal, “Patterns of Congressional Voting”)
T, F, and Explain: Poole and Rosenthal’s finding undermines a key assumption of the Median Voter Model without undermining its main conclusion.
TRUE. Poole and Rosenthal find that
politicians rarely change their views much; instead, when voters change, they
simply replace reigning politicians.
This contradicts the assumptions of the MVM, where candidates change
their positions to maximize votes. But it can still yield the standard
Median Voter Model’s conclusion, that policy matches the bliss point of
the median voter.
4. In a public opinion regression, suppose you replace education with IQ.
T, F, and Explain: You should expect ideology interacted with IQ to be more predictive
than ideology alone.
TRUE. Ideology interacted with education is
more predictive than ideology alone.
The standard explanation is that better-educated voters are more likely
to understand ideological concepts.
You should expect IQ to work the same way. Not only is IQ highly correlated with
education; it causally increases people’s ability to understand and
manipulate abstractions like “ideology.”
Part 2: Short
Essays
(20 points each)
In 6-8 sentences, answer all of the following questions.
1. “Voting reveals how altruistic people claim to be; Tiebout competition reveals how altruistic people actually are.” Explain why someone would believe this position. Is it correct? Carefully defend your answer.
Why believe this
position? Because voting for e.g.
redistribution is basically cheap talk.
Due to the low probability of decisiveness, the expected marginal cost
of voting for redistribution is very small even if you’re very rich. For Tiebout competition, in contrast,
moving to areas with higher redistribution and higher taxes usually has high
costs. Only a very altruistic rich
person would deliberately move to an area with higher taxes in order to help
out.
There is something to this
argument, but it is seriously overstated.
Moving in order to pay higher taxes has high deadweight costs. The lowest-cost way for any altruist to
help would simply be to make charitable donations. Furthermore, we shouldn’t forget
the recipients of
redistribution. If they were
unselfish, they would arguably move away
from high tax areas to avoid burdening their fellow citizens.
2. In the GSS, the question LETIN asks:
Do you think the number of
immigrants from foreign countries who are permitted to come to the United
States to live should be increased a lot (=1), increased a little (=2), left
the same as it is now (=3), decreased a little (=4), or decreased a lot (=5)?
Here are the results if you regress LETIN on ideology (POLVIEWS, 1=”extremely liberal”, 7=”extremely conservative”), years of education (EDUC), and dummy variables for race (BLACK, OTHRACE) and having two native-born parents (NATIVE).
How well do these results fit what we have learned about the determinants of public opinion? Be careful to point out any anomalies.
Fairly well. Ideology and education have the expected
signs: conservatives are more anti-foreign, and the educated are more
pro-market. Most people who say
OTHRACE are Hispanic, so this fits well with group interest. The same goes for NATIVE: People who
don’t identify with immigrants want fewer to come. The sign on BLACK is somewhat surprising
from a group-interest point of view: There aren’t many black immigrants,
but native blacks still seem relatively pro-immigrant. Perhaps blacks identify to some degree
with all non-whites.
Key anomalies: Since the
regression doesn’t control for income, the effect of education arguably
reflects self-interest rather than greater economic literacy. You could also argue that NATIVE
reflects (genetic) self-interest rather than group interest because immigrants
want to ease the immigration of their blood relatives. Note, however, that since recent
immigrants compete with previous immigrants in the labor market, self-interest
should probably predict a negative
sign on NATIVE, all things considered.
3. How would a purely genetic model of political preferences explain political change over time? Use such a model to predict a long-run cycle of political change for a policy outcome of your choice.
In a purely genetic model,
political change has to stem from demographic change: differences in fertility,
longevity, or migration. It is easy
to see how demographic change could cause linear
policy changes: E.g. policy becomes more socially conservative over time
because social conservatives have more kids. But demographic change can also lead to
cycles. Take abortion. When abortion is legal, pro-life genes
tend to grow over time. Pro-life
people don’t abort their kids; pro-choice people do. Eventually pro-life genes will be common
enough to ban abortion. But once
you ban abortion, the genetic selection for pro-life genes largely disappears,
allowing pro-choice genes to spread and eventually re-legalize abortion.
4. Caplan argues that Gerber et al (“Personality Traits and the Dimensions of Political Ideology”) neglect a plausible explanation for the connection between personality and ideology. How would Caplan justify his explanation? How would Gerber et al respond? Who is right?
Caplan argues that some
personality types simply see the world more clearly than others. His primary example is the trait of
Agreeableness. Scientists and
economists tend to have low Agreeableness.
They focus on facts and logic, and put little value on good intentions
divorced from good results. It
seems reasonable to expect such people to have more reality-based policy
views. The same arguably goes for
Stability and Conscientiousness.
Gerber et al would probably respond by arguing that the cognitive
benefits of low Agreeableness extend only to narrow, scientific questions, not
policy analysis as a whole. But
this seems like a cop out to me. If
a scientific mind-set can unravel the mysteries of evolution, why not the
mysteries of economic growth?