19 Political Economy

19 Political Economy - Chapter 19 Political Economy What...

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Political Economy Chapter 19
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What have we learned so far? Price floors cause surpluses Price ceilings cause shortages Tariffs harm consumers
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But Politicians still impose Price floors Price ceilings Tariffs What is wrong with economics that it can’t explain real world public policies?
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Why don’t politicians adopt the policies recommended by economists? Actually, economists can explain that, too Incentives Matter! Economists assume persons, including politicians, are self-interested Won’t self-interested politicians enact policies that benefit their constituents? Let’s examine that question…
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An Economic Model of Good Government Self-interested voters want politicians to enact policies that benefit voters Politicians want to be re-elected Therefore politicians will be led “as if by an invisible hand” to enact policies that benefit most voters Is that what we observe?
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Democratic Institutions should benefit the many Perhaps at the expense of the few The tyranny of the Majority But many policies seem to benefit the few at the expense of the majority Tariffs on imported sugar, lumber and steel Special interest legislation, in general Special tax breaks, for instance How can that be?
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Will self-interested politicians act in the interests of voters? If voters understand their own interests, and how public policies affect them, they should. What if voters are ignorant of how legislation will affect them? Then politicians can get away with acting against the interests of voters Why would voters be ignorant of the affects of legislation?
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Can Ignorance be Rational? Economics teaches that we should expect persons to engage in activities so long as the marginal benefit (MB) exceeds the marginal cost (MC) And stop when MB = MC
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Can Ignorance be Rational? Acquiring information about what politicians are doing is costly At the very least, it requires time What is the benefit of having information about what politicians are doing? What can you do with that information? Cast an informed vote? How valuable is that?
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How valuable is a vote? What is the likelihood that your vote will affect the outcome of an election?
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Which is more likely?
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This note was uploaded on 11/07/2010 for the course ECH 434 taught by Professor Dfs during the Spring '10 term at Binghamton.

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19 Political Economy - Chapter 19 Political Economy What...

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