Economics 410 Midterm

Prof. Bryan Caplan

Fall, 2010

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. “Whereas almost every occupational group involves thousands of workers, and whereas almost any subdivision of agriculture also involves thousands of people, the business interests of the country normally are concentrated in oligopoly-sized groups of industries.” (Olson, The Logic of Collective Action)

T, F, and Explain: Olson is explaining why agriculture gets so much help from the government.

FALSE. Olson is arguing that industries like agriculture normally fail to organize and therefore fail to get much help from the government. More oligopolistic industries are the ones that have the easiest time lobbying for assistance. Agricultural groups need to find an excludable byproduct to exert much political influence.

2. Suppose there are three voters – A, B, and C – with the following preference orderings (#1 = “most favorite”; #4 = “least favorite”):

	Very High	High	Low	Very Low
Voter A	#1	#4	#3	#2
Voter B	#2	#1	#3	#4
Voter C	#2	#1	#3	#4

T, F, and Explain: The electorate will not cycle even though Voter A’s preferences are double-peaked.

TRUE. Voter A’s preferences have peaks at “very high” and “very low,” so they are indeed double-peaked. But since Voters B and C completely agree, majority rule gives them their first choice of “high.” In fact, “high” is a Condorcet winner.

3. T, F, and Explain: According to Dye and Zeigler, voter apathy amplifies the dangers of voter ignorance.

FALSE. Dye and Zeigler maintain exactly the opposite: “[D]emocratic ideals survive because the masses are generally apathetic and inactive. Thus the capacity of the American masses for intolerance, authoritarianism, scapegoating, racism, and violence seldom translates into organized, sustained political movements.”

4. Suppose 90% of voters are totally ignorant, and the remaining 10% are perfectly informed.

T, F, and Explain: The Miracle of Aggregation does not ensure an efficient outcome if voters engage in group-interested voting.

TRUE. If the well-informed are especially likely to belong to some groups rather than others, politicians will win by catering to the interests of better-informed groups, even if this imposes high costs on the rest of society. For example, if the upper classes are better-informed and vote on the basis of group-interest, politicians will happily adopt inefficient policies that benefit the rich.

5. The General Social Survey asks respondents to place themselves on a scale from 1-5, where 1=”it is the responsibility of the government in Washington to see to it that people have help in paying for doctors and hospital bills,” and 5=”these matters are not the responsibility of the federal government.”  In a simple statistical model, people’s expected answer equals: 

.320 + .147 * Log(Real Income) - .075 * Health + .197 * Polviews

Polviews is a 1-7 measure of how liberal or conservative you are (higher indicates more conservative). Health is 1-4 a measure of how healthy you feel (lower is healthier).

T, F, and Explain: All else equal, the difference in opinion between the most liberal and the most conservative people is over five times bigger than the difference in opinion between the healthiest and the sickest people.

TRUE. The gap between the most conservative and the most liberal is .197*(7-1)=1.182. The gap between the healthiest and sickest is .075*(4-1)=.225. 1.182/.225>5. This is consistent with the general rule that ideology has a much larger effect on issue positions than self-interest.

6. T, F, and Explain: Foreign aid, immigration policy, and trade policy are good counter-examples to the rule that special interests get their way.

FALSE. Foreign aid is the most unpopular kind of spending; voters almost always ask for less. Voters also usually want stricter immigration policy and more protectionist trade policy. In all three cases, then, the median voter is not getting what he wants. Lobbying by special interests is a natural explanation for this gap between what voters want and what they get.

Part 2: Short Answer

(20 points each)

In 4-6 sentences, answer both of the following questions.

1. In the table below, give ONE original example of a public good that is (a) plausible and popular, (b) plausible and unpopular, and (c) implausible and popular. (Three examples total). Defend your examples.

	Popular	Unpopular
Plausible	Free Vaccination	Criminalizing contagion
Implausible	Banning marijuana	X

Free vaccination: Vaccination against infectious diseases doesn’t just benefit the person who gets the vaccine. It benefits everyone the person doesn’t infect as a result – and there’s no easy way to charge the beneficiaries for the favor. And of course free vaccination is a “feel-good” policy that enjoys popular support.

Criminalizing contagion: By “criminalizing contagion,” I mean imposing fines or jail time on sick people who expose others to their germs. This wouldn’t be very popular – we’re supposed to pity the sick, not jail them. But it would provide a large benefit to all the hard-to-charge anonymous strangers whose health it protects.

Banning marijuana: The ban is a popular policy that most Americans believe benefits our whole society – including users. But most Americans are wrong. Marijuana is less dangerous to the user and bystanders than alcohol, and almost all of the costs of marijuana are paid by the person who smokes it.

2. In class, we discussed four different models of voter motivation: self-interested, sociotropic, ideological, and group-interested. According to each of these models, what kinds of people will be most and least likely to support California’s marijuana legalization referendum? Note: You do not need to say which theory best fits the facts.

Self-interested: The strongest supporters would be smokers and potential smokers of marijuana, along with people who want lower taxes, higher spending, or lower deficits. The strongest opponents would be law enforcement, the alcohol industry, and parents of teens.

Sociotropic: Relying on my previous claim that the social benefits of legalization far exceed the costs, the most-supportive sociotropic voters would simply be the best-informed, and the least-supportive would be the least informed.

Ideological: Libertarians would be the most supportive, followed by liberals, with conservatives taking the opposite position.

Group-interested: The young and racial minorities are the groups who suffer most from prohibition, so they’d be the strongest supporters of legalization (even if they don’t smoke marijuana). The old and whites suffer the least, so they’d be the strongest opponents (even if they personally enjoy marijuana).