Intro Lecture Notes Ch08 Political Economy

7/31/2019 Intro Lecture Notes Ch08 Political Economy

1/4

EconomicsDr. Saue

Lecture Chapter 8: Political Economy

__________________________ is a branch of economics that studies government using the analyticaltools from economics.

I. To Be or Not To Be (Informed)

A. Voters and the incentive to be ignorantBeing informed is a good thing, but becoming informed on an issue comes at a price.

Economists say that voters are ______________________ about politics.- the _______________ of being informed are _______ than the _______ of becoming informed

There are ___________________ to become informed about politics.

Why voters may choose to be rationally ignorant about _________ issues:- too many - not relevant to your life

- not seem important - hard to find info

Why voters may choose to be rationally ignorant about __________ issues:- vote doesnt matter - too much info- not relevant to your life - negativity

Another problem is people having _____________________________ about issues.

Example: Out of the following list, which are the two most costly government spending items?

Defense

Foreign AidHealth CareInterest on the Federal DebtSocial SecurityWelfare

Why Rational Ignorance Matters:1. If voters dont know much about the issue, it is _____________ for them to make informeddecisions.

2. Rationally ignorant voters often make decisions on the basis of low quality, unreliable, orbiased information.

3. _____________________ is rationally ignorant.

B. Special Interests and the Incentive to Be Informed

Often time the ________ of a government action are ________________ while the ___________ are____________________.

- the group wanting the benefit has the incentive to be very well informed- the voters (taxpayers) foot the bill and have the incentive to be rationally ignorant


2/4

In 1975, there were 3,000 registered lobbyists. (national) Today, there are over 35,000.- There are 100 Senators and 435 House members!

When the benefits are concentrated and the costs are diffuse, resources can be wasted on projects with

_______________________ and high social costs.

A single policy might only waste a million or billion dollars.

Added up an economy may end up with hundreds of inefficient policies and billions of wastedtax dollars.

It is ___________________________________ to pass policies that have higher costs thanbenefits.

II. Voting Models

A. Types of Voting Systems

1. ____________ MajorityA candidate or ballot choice wins with ____________ of the votes.If there are more than 2 choices on the ballot, sometimes a winner may not be found by majority rule.

2. _____________ Voting

The choice with ________________________ wins.The winner may or may not have a majority of the votes.

3. Borda Rule

Let voters ___________ each possible outcome._________________ to each rank.

The outcome with the ___________________________ wins.

Ex. Imagine that Tennessee is having an election on the location of its capital. The population ofTennessee is concentrated around its four major cities, which are spread throughout the state. Supposethat everyone wants to live as near the capital as possible.

42% of voters(close to Memphis) 26% of voters(close to Nashville)

15% of voters

(close toChattanooga)

17% of voters(close to Knoxville)

MemphisNashvilleChattanoogaKnoxville

NashvilleChattanoogaKnoxvilleMemphis

ChattanoogaKnoxvilleNashvilleMemphis

KnoxvilleChattanoogaNashvilleMemphis

For each type of voter, assign 4 points to the highest ranked choice, 3 points to the next highest choice,and so on.


3/4

Memphis:

Nashville:

Chattanooga:

Knoxville:

B. A Problem with Majority Voting

For ballots that use majority voting rules, the ballot often has to be __________________ choices.- ensures there will be a clear winner

Often times, there are ___________________________________ than just 2 to start with.- need to narrow the choices

Sometimes the choices are arbitrarily determined, sometimes an initial election is held and then the topvote getters are subject to a run off.

Example:Suppose a city is deciding where to locate a new park and there are 3 possible options: south, central,east.

Also suppose there are 3 types of voters (type 1, 2, and 3) who have different preference about thelocation of the park. Presumably, they will vote to have the park located nearby to where they live.

voter type

type 1 type 2 type 3

Percent of the voters 35% 45% 20%

first choice south central eastsecond choice central east souththird choice east south central

Suppose the ballot pits south versus central. Which would win?

Suppose the ballot pits location central versus east. Which would win?

Suppose the ballot pits location south versus east. Which would win?

When the choice is south versus central, ___________ wins.When the choice is central versus east, ____________ wins.

The ___________________property would tell us that when the vote is south versus east, south shouldwin.

But in reality, when the choice is south versus east, __________ wins!


4/4

This is known as the _______________________: the failure of majority rule to produce transitivepreferences for society.

2 lessons:1. _______________________ power matters!!!!!!2. Majority voting doesnt tell us what outcome a society really wants.

C. The Median Voter Theorem says that under majority rule, the outcome will be the one favored bythe ______________________ voter.

- person in the center of the distribution of preferences

Ex: 40% of people want money spent on national parks, 60% want nothing spent on nationalparks.

- the median voter would have a preference of ___________________

Ex: Suppose voters have the following preferences:15% of the voters want to increase spending on education by no less than $2000 per student

25% of the voters want to increase spending on education by around $1500 per student15% of the voters want to increase spending on education by around $1000 per student35% of the voters want to increase spending on education by around $500 per student10% of the voters want to increase spending on education by $0 per student

The increase in spending on education is likely to be _________________________.

____________________________________________________________________________________Summary:The individual voter may have an incentive to remain rationally ignorant.

Special interest groups have an incentive to be well-informed.

Different voting rules produce different outcomes.

Documents

Intro Lecture Notes Ch08 Political Economy