Lesson 4

Question 1

4 government failures

Answer 1

1. majority voting: single-peaked preferences
2. median voter theorem
3. log-rolling (vid-trading)
4. representative democracy (elected politicians, bureaucrats, special interest groups)

Question 2

what is majority voting

Answer 2

= must have over half to win
–> will result in the efficient outcome IF the member of society have single-peaked preferences

Question 3

meaning single-peaked

Answer 3

= moving further from the desirable point gives lower utility than moving closer (only 1 desirable point, not 2+(double-peaked))

Question 3

How to see the winner in single-peaked preferences

Answer 3

1. for every voter show the 1,2, and 3 option.
2. for all voting options (a,b,c,d) show which one would win (a vs. b, a vs. c etc)
3. use the > to see who is preferred to –> combine to one single row

double-peaked –> makes results inconsistent (spiral, not 1 winner)

Question 3

when do double-peaked preferences occur

Answer 3

1. all-or-nothing investments (public transport)
2. multiple non-linear things (different packages that can’t easily be ranked)

Question 4

meaning voting paradox

Answer 4

= individual preferences can be consistent (clear order), but societal preferences are not
- whit multi-peaked preferences, the order of voting matter (agenda manipulation occurs –> whoever can set the order of votes has immense power)

Question 5

example vote trading

Answer 5

3 projects, 3 people voting (table with different benefits)

• without vore trading: all are beneficial to society, yet none would occur
• after vote-trading: 2 of these projects can be passed
• however, can also go the opposite way where the total loses are higher than gains (depends with who you trade)

–> always 1 who is left out, the one at the table isn’t beneficial

Question 5

Median Voter Theorem

Answer 5

conditions:
1. preferences are single-peaked
2. odd number of voters

results
- median voter always wins
- median voters preferences are all that matters

explanation:
1. see median voter on a line from small Q to large Q
2. 3 voters: A-B-C –> B can clearly pair with A or C and make a winning coalition
3. however, B will not need to compromise, because… if A moves closer, it can be part of winning coalition, if C moves even closer, then it’s part of winning coalition
4. goes on and on until one or other is perfectly aligned with B’s preferences

Question 6

meaning of logrolling (vote trading)

Answer 6

Before: each person has 1 vote, so everyone’s preferences are equal. However, it doesn’t take into account the size of people’s preferences

logrolling= allowing people to trade votes and therefore accounts for the strength of preferences of an individual
- can lead to more efficient provision of public goods (creates a market for preferences)
- reveals intensity of preferences

Question 7

Bureaucrats in representative democract

Answer 7

pros
+ design and execute programs
+ tenure lasts longer than elected officials = institutional memory
cons
- may have their own agenda
- not immune from corruption themselves

Question 7

Elected politicians in representative democracy

Answer 7

(representative democracy is most realistic, but direct democracy is still important to consider for electing officials)

• Mediam voter theorem can still apply in representative democracy
  –> 2-party system is quite stable
  –> politicians incentives align with voter’s incentives
  flaws:
• bundling of project makes it difficult to find median voter

Question 7

Special interest groups in representative democracy

Answer 7

assumption we has was that people act as individuals, not as group together

group power possible when: encouraged in group and all agreed upon & making campaign contributes (bribes)
based on:
- small number
- suffers from free-rider problem- ability to punish non-joiners
- acces to resources within group
- strengst of ideology

goals:
- redistribute income toward the group

–> example with cartels (don’t understand graph)

Question 7

Niskanen Model

Answer 7

= maximize own budget (because of status and job security, not innate value)

2 curves in the model:
- V(Q): The total value the legislative sponsor places on the quantity Q of the public good. (This is like total benefit to society.)
- C(Q): The total cost to the government of providing quantity Q

The efficient point is where the slopes (i.e., marginal values) of these two curves are equal:
- this occurs where Marginal Cost = Marginal Benefit
–> This is labeled as Q* on the graph.

But… what do bureaucrats do?
➡️ Total Value = Total Cost (i.e., V(Q) = C(Q))

This happens at a higher quantity, labeled Qᴮ in the slides.
–> But this is not efficient!

Between Q* and Qᴮ, the cost of additional units exceeds their benefit.
- So we get overprovision of the public good.
- This leads to waste –> a form of government failure.