1 Part 1 True or False, and explain. You will earn 3 points for correctly identifying true or false, and 7 points for the explanation. 1. Suppose citizens willingness to pay to vote (including opportunity cost) in a given election always equals $50. T, F, and Explain: Economic growth will raise voters probability of decisiveness by reducing the number of voters. TRUE. Since voters willingness to pay is fixed at $50, we only need to look at the cost of voting. Since economic growth raises wages and therefore the value of time growth reduces turnout. Using the probability of decisiveness formula, lower N implies higher P(decisiveness). AVERAGE SCORE: 4 2. Suppose there is an election with 501 voters; each voter's probability of voting "Yes" is.502. T, F, and Explain: Each voter's probability of casting the decisive vote is less than.01%. FALSE. Since the number of voters is 501, we can find n by solving 2n + 1 = 501, n=250. ( ) ( ) ( ) Solving in the calculator, we see this equals.03, or 3%, which is greater than.01%. AVERAGE SCORE: 8.8
2 3. 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. AVERAGE SCORE: 8.4 4. T, F, and Explain: In The Social Dilemma, Tullock argues that popular revolutions pose a paradox because he believes they should happen frequently and in the real world they happen rarely if at all. FALSE. To Tullock, the paradox is that revolutions happen at all whereas according to his theory they should never happen. He proposes several possible explanations, such as suggesting that most revolutions are thinly disguised competitions between rival elites rather than true popular or romantic revolutions. AVERAGE SCORE: 5.3 5. T, F, and Explain: In The Welfare Costs of Tariffs, Monopolies, and Theft, Tullock argues that deadweight loss from monopoly is underestimated by nearly 50% because people have used a triangular rather than a rectangular area. FALSE. Tullock states that deadweight losses from monopoly are highly underestimated by traditional analysis, but he says that the deadweight loss would be very hard to calculate. He admits the typical triangular area is a deadweight loss, but he claims that the rectangular area traditionally seen as a transfer is really a deadweight loss as well as the triangular area. And while many firms compete for the rectangular area ( rent-seeking as we discussed in class), it could be that the deadweight loss is several times more than that area suggests. AVERAGE SCORE: 4.1 Suppose there are three Russian voters in 1917 (Nicholas, Kerensky, and Lenin) and three choices (Czarism, Social Democracy, or Communism). Voter preferences, from most to least favorite, are as follows:
3 Nicholas: {Czarism, Social Democracy, Communism} Kerensky: {Social Democracy, Communism, Czarism} Lenin: {Communism, Czarism, Social Democracy} 6. T, F, and Explain: The alternatives are intransitive: there is no candidate who wins compared to every other candidate. TRUE. Czarism beats social democracy. Social democracy beats communism. But communism beats czarism, creating a cycle. Therefore, the alternatives are intransitive. AVERAGE SCORE: 8.1
4 Part 2 - Short Essay (20 points each): In 4-6 sentences each, answer both of the following questions. For full credit, be concise, clear, and use diagrams if needed. 1. How could log-rolling be efficiency-enhancing? How could it be inefficiency-enhancing? Give two contrasting examples (use numerical values) and explain the difference. Log-rolling could be efficiency-enhancing if it got rid of a popular but inefficient policy. For example, suppose the net benefits of marijuana prohibition are -$9 billion - non-users benefit by a total of $1 B from banning them, users suffer by $10 B. Marijuana smokers could agree to $2 B in taxes on marijuana cigarettes in exchange for legalization. Log-rolling could be inefficiency-enhancing if it led to the creation of two inefficient programs. Senator A might be one vote short of a museum (net social value of -$10 M), Senator B might be one vote short of a road (net social value of -$10 M). If each agrees to vote for the other's project, they both pass, for a net loss of -$20 M. AVERAGE SCORE: 10.3
5 2. In class and the readings, we discussed how bargaining can be used to reach the efficient outcome (where the mean policy preference is adopted) in a democracy. Could this be applied to dictatorship as well as democracy? Why or why not? To some degree it probably could. The dictator is a stationary bandit who wants to preserve his regime, so to some degree he will be willing to compromise with his subjects and keep them happy. For instance the Caliphates, medieval to early modern Muslim empires in the Middle East and North Africa, mandated that every citizen convert to Islam unless that citizen was willing to pay a tax called the Jizya. This was a bargain that allowed the non-muslims (called Dhimmi) to practice their religion since they valued it more highly than the ruling authorities valued universal conversion to Islam. However, as Acemoglu argued in Why Not a Political Coase Theorem, it may be prohibitively difficult for the people to bargain with a dictator because such bargains cannot be enforced. The people of North Korea may value freedom more than the Kims value dominating the country, but they cannot effectively buy out the dictators. Even if they had the money, the Kims would just confiscate it and still remain in power. The problem the dictator faces is one of credible commitments, which are difficult without third-party enforcement. AVERAGE SCORE: 4.7