Economics 410 Midterm Answer Key

Prof. Bryan Caplan

Spring, 2001

Part 1: True, False, and Explain

(10 points each - 3 for the right answer, and 7 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. Presidential candidates usually spend over a year running time-consuming and expensive campaigns.

T, F, and Explain: Candidates would greatly reduce their effort if they factored in their actions' probability of decisiveness.

FALSE. Individual voters have low probability of decisiveness, but Presidential candidates have a lot. One wrong word by a candidate can ruin his chances of victory. If one candidate campaigned for just a month, while his competitor still campaigned for a full year, the "lazy" candidate would be at a severe disadvantage.

2. Suppose there is an election with 31 voters; each voter's probability of voting "Yes" is .45.

T, F, and Explain: Each voter's probability of casting the decisive vote is 7.6%.

FALSE. (2n+1)=31, so n=15. p=.45. So:

3. Suppose that politicians care SOLELY about winning.

T, F, and Explain: Uncertainty about the position of the median voter will not generate platform divergence.

TRUE. Both politicians maximize their chances of winning if they both offer the platform they expect the median voter wants. Thus, if they both care solely about winning, platforms converge. Uncertainty only leads to divergence if politicians care about policy as well as winning. Then they will accept a greater risk of losing the election in order to pursue their preferred policies.

4. Hoffman's ("Rationality Reconceived") discusses three types of responses to the literature on voter ignorance.

T, F, and Explain: Hoffman would assign the Miracle of Aggregation to the third group of responses.

TRUE. Hoffman's third response is to "accept the empirical evidence" on voter information but "modify the ideal of rationality." This is exactly what the Miracle of Aggregation says: Voters may well be highly ignorant, but the aggregate outcome is still rational because voters' errors cancel each other out.

5. Assume that transactions costs of political bargaining are zero.

T, F, and Explain: In a standard election, the Median Voter Theorem holds even if some voters have multi-peaked preferences.

FALSE. With zero transactions costs, the Mean Voter Theorem holds, not the Median Voter Theorem. Under these assumptions, political bargaining leads the most efficient policies to be adopted.

6. T, F, and Explain: In spite of its weaknesses, the SIVH is more likely to work for "big" issues where voters' stakes are high.

FALSE. The SIVH fails for many "big" issues like Social Security, Medicare, and war. And it works well for some small issues like smoking. Overall, there is no apparent tendency for the SIVH to work better as stakes rise.

Part 2: Short Answer

(20 points each)

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

1. How might Olson explain revolutions in a way consistent with the "logic of collective action"? (Hint: What does Olson say about "by-products"?)

Revolutions are a puzzle for Olson, because they appear to be collective goods: if a new government seizes control, it affects activists and non-activists alike. Olson might however point out that revolutionary movements can buy cooperation with "by-products." The most obvious way to do this is to offer government jobs and other positions of authority to early supporters of the revolution. One might also threaten people if they fail to contribute.

2. Critique the following argument: "Restricting the franchise to college graduates would probably have little effect on political outcomes, because ideology and education are almost unrelated." Use Median Voter diagrams to illustrate your answer.

Restricting the franchise in this manner would probably have little effect on the overall liberalism/conservatism of policy. The reason is simply that ideology and education are largely unrelated, so the median level of liberalism won't change much. (More educated voters do tend to be more extreme, but this just stretches out the tails of the distribution without moving the median). However, policy would probably change in more subtle ways. There are many issues where educated people across the ideological spectrum agree with each other, and disagree with the less educated: free trade, tolerance of dissent, immigration, how well markets work, etc. Politicians would have to change their platforms to cater to these distinctive preferences of college graduates.