Explorations in Public Sector Economics

A fully rational choice approach to politics does not closely resemble modern models of voting behavior that purport to be applications of the economists analysis of rationality to the political sector. For these models do not build voting choices on the fragility of preferences about how to vote, which we show to be a basic implication of the voters paradox. Building a simple model on the fragility of preferences about how to vote delivers an number of different and realistic implications for the demand for public policies and political candidates, the supply of public policies and political candidates, and, ultimately, the determinants of public policy. The model explains why so many studies have found voters not voting in their (narrowly defined) self-interest, why minorities are not exploited under majoritarian voting, why interest groups have an important influence on public policy, why public decisions are so weakly correlated with voting rules, and why conformity is more common in political than private life.

Although there is a growing literature on scientific estimates and regulatory instruments for international efforts to control greenhouse gas emissions, the underlying political collective action processes have been neglected. We focus on the impact of uncertainty in assessing the benefits and costs of global warming regulation on constituencies and politicians in the bargaining countries. Uncertainty arises due to basic information problems about emissions and their link to global warming, the possible range of temperature changes, and their likely effects across the planet. These information problems also create uncertainty in calculating the net effects of global warming, determining its effective regulation, and assessing compliance by sovereign countries that may be differentially affected. We outline a two-stage analytical framework that describes the positions taken by representatives of negotiating countries and the internal public choice tradeoffs facing politicians when constituents are faced with differential and uncertain effects. We apply the framework to the Montreal Protocol to Control Substances that Damage the Ozone Layer of 1987 for insights in analyzing the Kyoto Protocol of 1997. Additional information will reduce uncertainty over time, and until uncertainty is lowered we conclude that limited regulatory efforts are most likely to generate internal political support within negotiating countries for international collective action.

Politicians often see price ceilings, subsidies and third-party payments as effective ways of reducing the amount consumers pay directly for goods and services and take credit for reducing their costs. While these policies may reduce prices, they are a form of censorship that invariably increases costs. Politically inspired interference in the communication that takes place through market prices reduces the information and discipline required to control costs. The most notable recent example of politicians trying to take credit for reducing costs with policies that increase them is found in their recommendations to reform health care. There are unfortunately a number of other examples such as price controls on apartment rents and subsidies to agriculture and education.

In this article we articulate three distinct paradigms about the cause of the Great Depression. These three paradigms are: the neoclassical view epitomized by Murray Rothbard and William Hutt, the intermediate view of Peter Temin, and the underconsumptionist views expressed by Herbert Hoover and Henry Ford. We present empirical evidence in favor of the Rothbard–Hutt view. The neoclassical labor market adjustment mechanism that effectively reversed the downturn of 1920–1921 did not operate in the mid-to-late 1930s, perhaps because of underconsumptionist ideology.

The term “externality” is pervasive in modern economics. Most microeconomic theory textbooks have a chapter devoted to the topic as do texts covering public economics. This chapter argues that law deals with the matter of externality in an economically efficient manner. Courts largely ignore the term externality despite its common use in economics and, more importantly, law has changed little to incorporate the now-common economic meaning of externality. Law, especially tort law, often deals with what economists would call relevant externalities. Economists often fail to understand what constitutes a relevant externality, resulting in the term being operationally meaningless.

Local bond referenda provide the best available information to test whether agenda setters prefer higher levels of public investment than do the voters. This study examines the entire population of local bond referenda in Ohio from 1963 through 1987. The results do tend to support the hypothesis that agenda setters attempt to raise expenditures above the level preferred by the median voter. Although about half of all referenda fail, most projects eventually pass–as is predicted by the hypothesis of expenditure maximization.

The media incorrectly called Al Gore the winner of Florida at 7:48 p.m. eastern time with 12 min still remaining to vote in the 10 Central time zone counties in Florida. In addition, the media reported that polls “close in Florida at 7:00 p.m. eastern time,” which may have misled some panhandle voters into thinking their polls closed at 6:00 p.m. central time. Given the closeness of the popular vote in Florida, and the degree to which the outcome in the state was contested, these media miscues could have been decisive in the election. When Bush was behind in the recount, his supporters adamantly claimed their candidate suffered a loss of votes because of these media miscues. We test this hypothesis and reject it. Our regression results find no significant impact on the Gore/Bush vote differential, nor do we find any impact on voter turnout or third party voting, in these counties.

Campaign effort is allocated towards resources that increase voter support the most for the marginal effort. A model is developed for the derived demand for investment in brand name and voter persuasion and for votes bought outright. We see that a secret ballot increases the cost of monitoring paid voters and changes the relative prices for obtaining voter support through bribery and investment in brand name capital, increasing the demand for campaign or brand-name-induced capital. Alternately, restrictions on new spending on brand-name political capital increase the demand for votes gained through direct bribery, treating and conveyance of voters to the polls, while at the same time increase the relative value of incumbency, of existing brand-name political capital. The model we develop is used to examine restrictions on spending and on brand-name investment in candidates and the effects of such spending limits (and limits on campaign contributions) on the demand for additional votes gained by vote buying, treating and conveyance of voters to the polls.

Efforts to estimate the effect of having more school districts (i.e., having more competition among school districts) have been hampered by the difficulty of finding a good instrument for the number of school districts. We identify 9 states in which the state requires that the school districts be county-wide or state-wide; these laws have been in place for almost 7 decades. In states with no restrictions on the formation of school districts, larger metropolitan areas have more school districts, and thus more inter-district competition. As expected, student test scores are higher in larger metro areas that do not require county-wide or state-wide districts. On the other hand, test scores are no higher in large metro areas than in small metro areas in states that prohibit any rise in the number of districts as the metro area grows.

The endowment effect suggests that consumer preferences are reference-dependent; i.e., that the shapes of indifference curves depend on an agent’s initial endowment and the direction of exchange offers. Hence, a person may value a good more highly once ownership is established, causing disparity between willingness to accept and willingness to pay value measures. In this paper we test for the endowment effect in a manner that does not rely on observing value disparities. We employ a one shot voluntary contribution mechanism (VCM) with treatments for account framing, duration effects, and the physical handling of the initial endowment. The treatments are designed to vary subjects’ perceived ownership over their experiment endowments. Results generally fail to support reference-dependence in manners suggested by the endowment effect. Contribution rates are higher when initial endowments begin in subjects’ private accounts compared to when originating in the shared public account. Contributions are no different when subjects hold their endowments for up to one week. And contributions are higher among subjects who physically handle cash compared to those indicating their decisions in writing.

An examination of the history of roads in England demonstrates that roads are never Samuelsonian public goods, and that free access roads are really common pools. In some institutional environments, however, many roads were club goods maintained through reciprocal arrangements. Private toll roads arose where possible but collecting tolls on “public” roads was a government prerogative. Nonetheless, as government action undermined club-good arrangements, local groups petitioned for and received permission to finance maintenance with tolls. Turnpike trusts managed these toll roads, but they were not “private” roads because significant regulations including government-mandated tolls and exemptions were imposed, based on political rather than economic considerations. Profit taking also was not allowed so incentives for trustees to monitor workers were weak, corruption was rampant, and many trusts ultimately failed. In the absence of regulatory constraints there is little doubt that private roads would have been widespread.