JohnsonandLibecapEthanol - Econ Gov(2001 2 101134 c...

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Econ. Gov. (2001) 2: 101–134 c ± Springer-Verlag 2001 Information distortion and competitive remedies in government transfer programs: The case of ethanol Ronald N. Johnson 1 , Gary D. Libecap 2 , 3 1 Bozeman, MT 59717, USA (e-mail: [email protected]) 2 Department of Economics, University of Arizona, Tucson, AZ 85721, USA 3 National Bureau of Economic Research, Cambridge, Massachusetts 02138, USA (e-mail: [email protected]) Abstract. This paper reconsiders the analogy between competitive markets and the political process that is central to much of the literature on the efficiency of government transfers. The key problem is that property rights in politics are much less well defined than they are in competitive markets. As the paper outlines, obtaining accurate information about the benefits and costs of transfers is likely to be much more difficult than envisioned in the literature. Investigators, as well as general voters, often must rely on the government and competing parties for provision of information about underlying program parameters and functional relationships. We argue that politicians and the affected interest groups have incentives to limit and distort the information that is released to voters and that political competition is unlikely to be an effective counter. In developing the argument, a theoretical framework is provided and applied in a case study of the ethanol transfer. The documented efforts to disguise the actual costs and benefits of the program are important for gaining a broader understanding of the functioning and costs of government transfers in the economy. Key words: efficiency, government, information, ethanol, transfers JEL classification: H3, L14 Acknowledgments: We have benefitted from able research assistance provided by Joseph Bial; support from the International Center for Economic Research (ICER), Turin, Italy; and comments from David Weimer, Oliver Williamson, Bruce Gardner, other colleagues, and participants at workshops at the Western Economics Association Meetings,1998, the University of Chicago, 1999, the University of Texas, 1999, and the Conference on Regulation, Stockholm, June 12-15, 1999. Another version of this paper prepared for that conference, “Information Distortion by Politicians and Constituent Groups in Promoting Regulatory Transfers: The Case of Ethanol” will appear in Lars Magnusson and Jan Ottosson, eds, Private Actors and Public Interest: The Role of the State in Regulated Economies . Edward Elgar Publishers, London.
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102 R.N. Johnson, G.D. Libecap 1. Introduction The view that government programs often are merely masked efforts to transfer wealth via the political process is a prominent part of the rent-seeking litera- ture (Buchanan and Tullock (1962), Stigler (1971), Krueger (1974), and Tullock (1967)). More recently, however, these rent-seeking arguments, which imply that government transfer programs reduce wealth, have been criticized as ig-
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JohnsonandLibecapEthanol - Econ Gov(2001 2 101134 c...

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