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CHAPTER 6

CHAPTER 6. POLITICAL ECONOMY. Direct Democracy-Unanimity Rules. 0’. D r E. Eve’s share (S E ). S*. Adam’s share (S A ). D r A. 0. r per year. r*. The Lindahl Model. Feasibility of Unanimity Rules. Reaching equilibrium Practical problems Strategic behavior time to reach equilibrium.

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CHAPTER 6

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  1. CHAPTER 6 POLITICAL ECONOMY

  2. Direct Democracy-Unanimity Rules 0’ DrE Eve’s share (SE) S* Adam’s share (SA) DrA 0 r per year r* The Lindahl Model

  3. Feasibility of Unanimity Rules • Reaching equilibrium • Practical problems • Strategic behavior • time to reach equilibrium

  4. Majority voting rule – one more than half of the voters must favor a measure for it to be approved Direct Democracy-Majority Voting Rules

  5. Voting Paradox – community preferences can be inconsistent even though individual’s preferences are consistent Agenda Manipulation – process of organizing order of votes to ensure a favorable outcome Cycling – when paired voting on more than two possibilities goes on indefinitely without a conclusion ever being reached Direct Democracy-Majority Voting Rules

  6. Graphing Preferences Single-peaked preferences Utility Jen Double-peaked preferences Brad Angelina Missiles B C A

  7. Practical Importance of Double-peaked Preferences • Availability of private substitutes • Issues ranked along single dimension

  8. Direct Democracy - The Median Voter Theorem

  9. Direct Democracy - Logrolling I

  10. Direct Democracy - Logrolling II

  11. “Reasonable” collective decision-making criteria It can produce a decision whatever the configuration of voters' preferences It must be able to rank all possible outcomes It must be responsive to individuals’ preferences It must be consistent Independence of irrelevant alternatives Dictatorship ruled out Arrow’s Impossibility Theorem All conceivable voting schemes have some potential for being unfair or producing a paradoxical result Meaning of theorem consistent rule not necessarily impossible to find, but cannot be guaranteed Buchanan’s critique Use of social welfare functions Direct Democracy - Arrow’s Impossibility Theorem

  12. 0 Representative Democracy - Elected Politicians Number of Voters Liberal Conservative

  13. Implications of the Median Voter Model • Two-party systems tend to be stable • Replacement of direct referenda by representative system has no effect on outcomes

  14. Other Factors Influencing Voting • Single-dimensional rankings • Ideology • Personality • Leadership • Decision to vote

  15. Representative Democracy-Public Employees • Function of bureaucrats • Goals of bureaucrats

  16. Niskanen’s Model of Bureaucracy C $ V Actualoutput Efficientoutput 0 Q* Qbc Q per year

  17. Representative Democracy – Special Interests • What are “Special Interests” • Establishment of Special Interest Groups • Source of Income: Capital or Labor • Size of Income • Source of Income: Industry of Employment • Region • Demographic and Personal Characteristics

  18. Representative Democracy – Rent-Seeking $ Rents S=MC D tons of peanuts per year MR

  19. Representative Democracy – Other Actors • Judiciary • Journalists • Experts

  20. Explaining Government Growth • Citizen Preferences G = f(P, I) • Marxist View • Chance Events • Changes in Social Attitudes • Income Redistribution

  21. Controlling Government Growth • Government growth as a non-issue • Government growth as a problem • Commitments made in the past • Basic flaws in the political system

  22. Improving the Workings of the Political System • Change bureaucratic incentives • financial incentives • privatization • Change Fiscal Institutions • Budget Enforcement Act (BEA) – 1990 • Balanced budget rules at the state level • Institute Constitutional Limitations • Balanced budget amendment

  23. Provisions of a Typical Balanced Budget Amendment • Congress must adopt a budget statement “in which total outlays are no greater than total receipts” • Total receipts may not increase “by a rate greater than the rate of increase in national income” • “The Congress and President shall…ensure that actual outlays do not exceed the outlays set forth in the budget statement” • The provisions can be overridden in times of war

  24. Critique of Balanced Budget Amendments • Forecasting issues • Definitional issues • Penalties for violation of the law • Economic issues

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