Assignment 3 ECO Pub Sec Bucci 314 PDF

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Prof. Bucci ECO 314 16 May 2018 Assignment #3 2. Instead of all residents having identical marginal benefit schedules, the marginal benefit per gardener varies for five residents according to the following table: Voter

One

Two

Three

Four

Mike

325

275

225

175

Jan

225

150

75

0

Franklin

75

50

25

0

Susan

75

50

25

0

Megan

50

25

0

0

If each voter is assigned a tax share of $50, what is the political equilibrium under majority rule? Show that this equilibrium does not result in the efficient output of gardening services. Show how the Lindahl equilibrium will differ from the political equilibrium under majority rule. The political equilibrium is two gardeners. Having one gardener would not maximize the marginal benefit to the fullest extent. Three or four gardeners would be voted down due to the marginal benefit being less than the the tax burden for a majority of voters. At two, only one person’s marginal benefit would be less than optimal, but the community would still vote for it. However, the Lindahl equilibrium would be at three gardeners. The aggregate marginal benefit would be closest to the aggregate tax burden at three without crossing below it. Marginal benefit of 350 for three gardeners is higher than the aggregate tax burden of 250. Having four gardeners would result in a marginal benefit of 175 < 250 tax burden. Four of the five voters would not accept this result, through.

*Tax Burden Line should be at $350

3. The example of logrolling used in the text assumes that the

transactions costs of vote trading are zero. Suppose instead that voters A and C have to incur expenditures equal to $60 per week to reach agreement on the vote-trading scheme. Show how this would prevent successful logrolling. Also show how logrolling would be impossible if the marginal benefit of the first security guard were only $150 to voter A and transactions costs were zero. By having a transaction cost of $60, the single tax burden for voter C is greater than the marginal benefit of 250 causing them to veto the vote (Figure 2). If the marginal benefit of the first security guard was only $150 for voter A, this voter would not have an incentive for logrolling as they would receive a greater tax share than marginal benefit. Thus, voter A would veto the vote as well (Figure 3). Figure 1: Starting point Figure 2: transaction cost to logrolling Figure 3: Security guard MB is $150 Figure 1:

Figure 2:

Figure 3:

4. Suppose the positions of political candidates on all issues can be ranked on a scale of conservative to liberal. The more conservative a candidate, the less the quantity of public goods he will supply. Suppose as well that all voters favoring liberal candidates will vote while only 50 percent of those favoring conservative candidates will vote. Use a graph like the one drawn in Figure 5.6 to show how the political equilibrium will differ from an election in which all citizens vote. Confirm this thought process: 50/50 tax burden would be Q*full. Far left curve would be 100% conservative, second from the right would be somewhere around 75% of the total population so 25% of that would be the half of the conservative population voting meaning Q*50% would be the point of political equilibrium.

Net Benefit

Q* (Full) Q* (50%)

Government Expenditure...