Showing papers in "Public Choice in 1987"

Balanced-budget redistribution as the outcome of political competition

Abstract: This paper models balanced-budget redistribution between socio-economic groups as the outcome of electoral competition between two political parties. Equilibrium is unique in the present model, and a sufficient condition for existence is given, requiring that there be enough ‘stochastic heterogeneity’ with respect to party preferences in the electorate. The validity of Hotelling's ‘principle of minimum differentiation’, and of ‘Director's Law’, are examined under alternative hypotheses concerning administrative costs of redistributions, and voter's possibilities both of abstaining from voting and of becoming campaign activists for one of the parties. The policy strategy of expected-plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality. Incomes are fixed and known, so lump-sum taxation is feasible. However, constraints on tax/transfer differentiation between individuals are permitted in the analysis.

Interest groups, campaign contributions, and probabilistic voting

Abstract: This essay develops a simple model to analyze the impact of campaign contributions on electoral-policy decisions of candidates for office. Interest groups here are firms that select contributions under the assumption that candidates' policies and opposing groups' donations remain unaltered. Candidates, however, recognize that their policy choices affect contributions. Campaign contributions are used by candidates to affect policy-oriented voters' perceptions of candidates' positions. In this framework the introduction of campaign contributions may affect candidates' electoral policies, and if they do then they benefit surely exactly one of the two interest groups.

Dissipation of contestable rents by small numbers of contenders

Abstract: The theory of rent seeking with its origins in the observations of Gordon Tullock (1967) - or to use Jagdish Bhagwati's (1982) proposed term, the theory of directly unproductive profit-seeking activities - is concerned with the potentially adverse effects on resource allocation of incentives to cap- ture and defend artificially-contrived rents and transfers. The scope for so- cial loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the con- test to determine the beneficiary of the prize. Underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended. It has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking. Then, if some further condi- tions are satisfied, l the total value of the resources expended precisely equals the value of the prize sought, so dissipation is complete. 2 Conse- quently, the social cost associated with contestability of a rent can be in- ferred from the value of the rent itself, and the detailed and hard-to-come- by information on individual outlays made in the course of the contest be- comes unnecessary. By basing their analyses on competitive dissipation, contributors to the rent seeking literature (see the review by Robert Tollison, 1982) have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regu- lation. Similarly, in the trade-theoretic literature where the rights contested are to quota premia or revenues from trade taxes (Krueger, 1974; Bhagwati

Government, special interest groups, and economic growth

Abstract: In descending order of robustness and strength, the four major conclusions are: (i) the experience of industrial countries in the postwar period indicates that a large welfare state has been associated with a high rate of economic growth; (ii) the Olson thesis that powerful special interest groups impede growth receives empirical support; (iii) the relation between growth and the welfare state is non-linear, with increases in the size of the welfare state beyond some critical level (one sixth of GDP according to our estimates) resulting in reductions rather than increases in the growth rates; and (iv) the strength of the growth-promoting properties of the welfare state is positively related to the strength of special interest groups as proxied by the proportion of the work force unionized. One possible interpretation of these results runs as follows. A large welfare state may retard economic growth by reducing the incentives to work, to save, to move, and to change. On the other hand, in a situation where special interest groups have aquired significant power to block change if they so desire, the welfare state, which offers assistance to those who are the victims of change, may play a growth-enhancing role in reducing the incentive to block change. The fourth conclusion just stated supports this view. The welfare state may also foster economic growth through favourable effects on social consensus, political stability, and labour-management relations. The results suggest that the growth-promoting forces predominate as long as the welfare state is not too large, but beyond a certain point, which corresponds more or less to the median situation among developed countries today, the growth-retarding elements come to the fore.

Your vote counts on account of the way it is counted: An institutional solution to the paradox of not voting

Abstract: When we explicitly lay out all its steps, we find that the Paradox of Not Voting (since the chance of one vote's making a difference is about zero, why trouble to vote?) rests on a false but hitherto unremarked assumption about the institutional context of elections. My solution to the Paradox is more conservative than others that have been proposed, and it yields a rational-choice model of voting whose consequence accord well with empirical findings on turnout.

Labor PAC contributions and labor legislation: A simultaneous logit approach

Abstract: Labor PACs are used to explore the potential congressional influence of campaign contributions from special interest groups. PACs of organized labor are particularly useful for two reasons. First, a set of labor issues are defined each year by the AFL-CIO and so ad-hoc decisions about pertinent legislation are not made by the researcher. Secondly, there are measurable traits of representatives and constitutents that may lead to a predisposition of labor support. By combining these two attributes, a model is developed to investigate the question of congressional influence.

The textile bill of 1985: The determinants of congressional voting patterns

Abstract: The following tables show the results of the probit analysis for the Senate and the House. A table including results for different combinations of the independent variables is included in an unpublished appendix available from the authors upon request. The results of the probit analysis for the Senate are shown in Table 1. All the variables except EXP had the expected signs, however the results indicate that the two other employment variables and party affiliation are the only factors which we can say with confidence influenced a Senator's decision to vote for or against this bill. The coefficients reported and labeled ‘der of prob’ measure the derivative of the probability of a yes vote evaluated at the means of the independent variables in question. Thus, for example the coefficient for UNEMP in the top line of Table 1 should be interpreted as indicating that a one percentage point increase in a state's unemployment rate will cause a 5.89% increase in the probability that the Senator will vote for the bill. The result for DR, the party of the Senator, shows that in general Democrats are more apt to vote for protectionist policies than are Republicans. This is consistant with President Reagan's negative stand on the bill, and his threat to veto it should it pass. The amendment in question passed the Senate on 24 October 1985, by a vote of 54 for to 42 against, but the bill it was attached to has been postponed indefinitely. The House bill, which was passed on 10 October 1985 by a vote of 262 for to 159 against, was vetoed by Reagan on 17 December 1985. The results of the probit analysis for the House of Representatives are shown in Table 2. State employment data was used for the House as opposed to data for each voting district. This was done for three reasons. First, employment data is usually reported by state or by county. Since counties are often divided by congressional district boundaries, much personal judgement would be necessary to assign employment figures. Second, the most recent county industry employment data is from 1981, while the data used in this analysis is from 1984. Third, we feel that in general ‘logrolling’ is prevalent among a state's representatives. For this bill, the representatives from twenty six states voted as a block, and in all but six states one third or less of that state's representatives voted contrary to the majority. All of the probabilities are significant at the .05 confidence level. Representative's voting patterns are influenced by all of the included factors. When unionization is added to the equation, its coefficient is very small and negative although it is significant at the .05 confidence level. One would expect more significance here since there are more degrees of freedom for the House analysis than for that of the Senate. When the data from the House and Senate are pooled the results are similar to those of the House alone. The null hypothesis that the data cannot be pooled was tested using a χ statistic with eight degrees of freedom. χ = 9.721, meaning that the null hypothesis is rejected. As in the Senate, the state unemployment rate and the percent employed in textiles are important influences on the Representative's vote, and Democrats in the House are more likely to vote for protectionist bills than Republicans. However, unlike the Senate, the percent of a Representative's campaign contributions that are donated by industry special interest groups has a significant effect on voting patterns, although the point estimates for the magnitudes of the influence are very similar in both cases. Seventy-four percent of the House received campaign contributions from these special interest groups, while only 54% of the Senate received contributions from these same sources. This is probably because only one third of the Senate was up for reelection during the time period considered, while the entire House was in the process of campaigning for reelection. Exports also play a role in influencing the probability of a ‘yes’ vote, reducing this probability as employment in export industries increases, but the magnitude of the coefficient is only 11% of that for textile employment. The significance of this variable in the House is probably due to fear of retaliation, expressed by both Democrats and Republicans. This variable was not significant in the Senate model, most likely because the Senate version excluded from the 1% import quota growth rate many countries who might have retaliated. Representatives appear to respond to a wider variety of constituent interests than do Senators. While Senators' voting patterns are only significantly influenced by their political affiliation, their state's unemployment rate and the importance of textiles to their state, the voting behavior of Representatives is influenced by these factors as well as the importance of exports to their state and campaign contributions by textile special interest groups. These results affirm the validity of the approach used by Baldwin and Coughlin. They differ from Baldwin who finds exports are not a significant influence on the House, and from Coughlin, who does not include export employment as an explanitory variable or analyze the differences in voting patterns between the House and the Senate.

The Downsian model of electoral participation: Formal theory and empirical analysis of the constituency size effect

Abstract: This paper applies a game-theoretic model of participation under uncertainty to investigate the negative relationship between constituency size and voter turnout rates: theconstituency size effect. We find that this theoretical model accounts for almost all of the variation in turnout due to size in cross sectional data from school budget referenda.

The cameralists: A public choice perspective

Abstract: We think that cameralism offers much interesting material to public choice scholars. Treated purely as a matter of intellectual history, cameralist thought reflects an integrated treatment of considerations that today are commonly apportioned among the disciplines of economics, political science, and public administration. The unified cameralist perspective centered on the theory and practice of statecraft should surely be congenial to public choice scholars. But there is also much opportunity for scholarship on the economic and political history of the German states during the cameralist period. While we have suggested that the various German states constituted what might be considered a competitive industry in the provision of collective services, comparatively little is known about how the various economic and political processes actually operated during this period. For instance, rules of dynastical succession surely conflict with the competitive model; there is little dynastical succession in economic life. Our quick, and far from complete reading of the history suggests that there may have been much less dynastical succession than is commonly believed, and that the management of states changed hands more frequently than commonly thought.1 But we have little solid evidence to offer about this; we do think, though, that public choice scholarship could bring many valuable insights to bear on this period. Indeed, the various writers within the German Historical School have in many cases left a rich legacy concerning political economy to which public choice scholars could bring valuable perspectives and fresh questions.

Inflation and political instability in eight Latin American countries 1946-83

Abstract: The path of consumer price rises is compared with data for the incidence of political change and the frequency of military regimes from 1946 to 1984 for the following countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay and Venezuela. A highly significant connection between the frequency of military government and the level of inflation is found. This appears to be due to two other significant results: (i) The military regimes are relatively unstable ones. (ii) Inflation normally turns upwards under civilian and downwards under military regimes, i.e., the military regimes are relatively strong in fighting inflation. Finally, it is demonstrated that few regimes survive a spell of hyperinflation.

The determinants of the choice between public and private production of a publicly funded service

Abstract: The public choice literature contains little formal analysis of the bureaucratic choice of production modes — public or private — of publicly funded services. An important question to be addressed is why some governmental bodies choose to provide a publicly funded service with publicly owned and operated production units whereas other governmental bodies contract with private firms to provide the same publicly funded service. This paper is the first formal attempt to remedy this gap in the literature. We develop a theoretical explanation of the government decision maker's choice between public and private production modes based on utility maximizing behavior. We then examine empirically this choice employing logit analysis. The empirical results, which include several tests for robustness, confirm our theoretical explanation. The results are significant and suggest that non-monetary constraints are an important factor affecting this choice of production modes and that monetary constraints are less influential.

The optimal size of government

Abstract: In the economic analysis of the theory of government, two views of government are evident. The Pigovian view sees government as a benevolent actor striving to correct for the inadequacies and excesses of an unrestrained marketplace. The ‘Public Choice’ view of government portrays government as the tool of special interest groups as likely to generate distortions as to correct them. In this paper, a model of government that incorporates both views will be developed and then empirically tested. The model developed assumes that all expenditures by the government are inputs into the private sector production. Treating government expenditures as inputs into the production of private sector output, there is some optimal size of government that maximizes private sector output. The model incorporates a general production function for private sector output. Output is a function of private labor, private capital, and government expenditures. The Pigovian and Public Choice views of government are reflected in the assumed impact of G on the marginal productivities of L and K. The model is tested using United States data and a Cobb-Douglas production function. Estimates indicate that the 1983 level of government expenditures exceeds by 87 percent the level that would maximize private sector output. Reducing government from $ 491 billion to $ 263 billion and shifting the freed labor to the private sector would increase output from $ 1187 billion to $ 1451 billion.

Expenditures and receipts: Testing for causality in state and local government finances

Abstract: The results of our tests indicate similarities between the expenditure-tax receipt relations of state governments to those previously reported for the Federal government in Manage and Marlow (1986); the results reported here indicate support for the hypothesis that tax receipts cause expenditures at the state level of government. For tests utilizing symmetric lag structures ranging from three to five years, state expenditures appear to follow state tax receipts. For the shortest lag length (2,2), the determination of bidirectional causality does not make us reject the hypothesis that higher spending levels result from higher revenue levels; rather, the causality appears to be in both directions for the shortest lag length.

A public and private-choice model of broadcasting

Abstract: This paper has established a framework for the analysis of program diversity and audience shares under different regimes of ownership, regulation, and channel quality. The model is one of comparative statics, and lends itself to analytical solutions. It can serve as a tool to clarify programming decision-making and the impact of various institutional arrangements. The audience maximization of commercial broadcasting leads to program quality similar to that of a direct democratic process. To create a bias towards quality, alternative mechanisms had to be introduced. That, together with the potential for the propaganda use of broadcasting and the potentially large rents of controlling a scarce channel, made questions of broadcast policy extraordinarily hard-fought, especially in European countries. However, the emergence of alternative distribution channels and payment mechanisms has moved television programs much more into the mainstream of economic transactions. In consequence, the need to use the political arena to assure the supply of certain programs has declined, the marginal losses to incumbent channels has successively decreased, and the propaganda reach has been reduced by the spread of programs over the distribution. Therefore, liberalization is less resisted because the stakes have become lower.

Cooperation and punishment under repeated majority voting

Abstract: In light of the extensive theoretical evidence suggesting absence of equilibrium in voting models, Tullock (1981) asks "Why So Much Stability?" Our results suggest the following answer: Political agents engaged in long-term relationships can sustain highly stable allocations if there are strongly held norms for punishment of defectors.1

Chameleon voters and public choice

Abstract: A model is presented of an open-voting public choice process that features pressure groups vying for society's support. Individuals choose what policy to advocate on the basis of their private preferences, which are those they would express in a secret ballot; endogenous social pressures; and the utility they gain from integrity. They falsify their preferences when the benefits of doing so outweigh the costs. An implication is that a policy advocated by few people in private might receive strong public support. The paper goes on to explore why secret voting, which eliminates this possibility, might not be adopted.

Executive veto, legislative override, and structure-induced equilibrium*

Abstract: In this study the structure-induced equilibrium approach for modeling democratic institutions is extended to allow for the added structural features of executive veto and legislative override. A multidimensional model is presented for a budgetary process involving three actors — a legislature, an appropriations committee, and an executive. In order to focus attention on the role of the veto and override possibilities, simplifying assumptions are made with regard to other aspects of the agenda formation process. In particular, the committee has monopoly agenda power, a closed amendment control rule is operative, and perfect-foresight expectations are held by the committee and the executive. Given these assumptions, utility maximization by the several actors generates a budget outcome characterized as a structure-induced equilibrium. The general model is illustrated geometrically with a two-dimensional example, permitting budget outcomes to be analyzed for various combinations of veto rules and override provisions. The analysis demonstrates that budget outcomes are sensitive to alternative specifications of veto rules and override provisions. In the illustration, executive veto power is shown to vary directly with both the permissiveness of the veto rule and the stringency of the override provision. Similar relationships, however, are not found to exist for total budget expenditures.

Reputation and legislative leadership

Abstract: ing away other aspects of legislative leadership, such as the nature of the collective action a leader tries to promote or the exact nature of the leader's own goals, we have constructed a stylized model of one important aspect of the leader's problem: the use of reputation. Reputation is really a problem of using the uncertainty of followers to the leader's best advantage, to make the most of whatever real resources the leader actually has. Although the leadership game has multiple equilibria when the leader is precisely indifferent between costless punishment and acquiescence, the slightest preference between those actions yields a unique equilibrium. When the preference is for costless punishment, this equilibrium involves creating a reputation, and we can use its properties to draw conclusions about (1) the nature and strategy of reputation-building and of the reactions of sophisticated followers; and (2) the manifestations of these strategic considerations in institutional and political change in Congress.1

The rise and evolution of public pension systems

Abstract: Security Crisis. Basically the crisis manifests itself by the fact that if young participants in the existing public pension plans were allowed to withdraw and invest voluntarily in their own preferred, privately marketed insurance plans, they would be able to secure a rate of return that is substantially higher than the rate of return under the existing plan. Of course, this would not be the case if public pension plans were financed by a funding system rather than the existing Pay-As-You-Go (PAYG) system. Given the PAYGsystem and the actual decline of birth rates in many western countries future pension tax rates can reach levels as high as 40 percent or more'. It might be suspected that future generations will not be willing to contribute to the system by the necessary amount making declining benefit rates inevitable if not the altogether elimination of the system. Notice that if the present generations expects this future development to arise they can calculate their rate of return under the present benefit/tax structure to be even lower. The inevitable conclusion thus seems to be that if the implicit claims build up under the existing system can be expected not to be allowed by future generations, the present generation will do likewise with respect to the claims of the now living older generation. However, the popular support for public pension plans is not detoriating at present in many western countries, thus falsifying the foregoing observation.

Retrospective voting: An experimental study

Abstract: This essay reports on some experiments designed to study two candidate electoral competition when voters are ‘retrospective’ voters. The experiments consist of a sequence of elections in which subjects play the part of both voters and candidates. In each election the incumbent adopts a policy position in a one-dimensional policy space, and voters are paid (on the basis of single peaked utility function over that space) for the position adopted by the incumbent. Neither voters nor candidates are informed of the voter utility functions, and the only information received by the voter is the payoff he has received from the present and previous incumbent administrations. Despite the severely limited information of candidates and voters, we find that, generally, candidates converge toward the median voter ideal point.

Budgetgames and the private and social demand for mixed public goods

Abstract: We have indicated how budgetgames played by a representative sample of voters can be used to estimate the marginal social demand for mixed public goods. A model has been developed that enables us to distinguish between private and social demand considerations of the players. Information on marginal social demand is obtained by comparing the actual outcome of the game with a simulated game solution based on the optimization of private benefits only. This optimization problem is shown to be approximately equivalent to a linear programming problem in which each respondent minimizes the loss of subsidies on his consumption of the mixed public goods considered. Empirical results show the largest marginal social demand for public services for the elderly, followed by mental health care, primary and secondary education and higher education. A negative marginal social demand is expressed for in-patient health care, police and justice, outpatient health care and culture and recreation, the latter service having the smallest social demand. An unexpected result is the relatively large marginal social demand for higher education. Although this service is severly cut in the actual game, this outcome mainly derives from small private benefits to the average voter. Therefore, the usual interpretation of budgetgames — that identifies heavy budget cuts with small social demand — underestimates the social demand for higher education. The reverse is true for general in-patient health care. Although this service is moderately cut in the actual game, this result mainly derives from the large private benefits to the average voter. In this case the usual interpretation of the game overestimates social demand. We have also studied the dependence of the marginal social demand pattern on the political orientation of the voters. Apart from typical pure or almost pure public goods such as defence, general government and police and justice services — clearly favoured by right-wing voters — we find no strong dependence on political orientation.

A note on Nanson's rule

Abstract: E.J. Nanson, in 1883, proposed a voting rule designed mainly to select the Condorcet winner. Unfortunately, much of the collective choice literature has misstated Nanson's rule. This note shows that the misstated versions of the rule and Nanson's actual rule can yield different outcomes, and it provides a counter example, which shows that Nanson's rule, although it satisfies the strong Condorcet condition, does not satisfy the weak Condorcet condition.

The lessons of 1787

Abstract: For the celebration of the bicentennial of the Constitution In 1987, the organizers of this conference have asked me whether or not we can learn relevant lessons from the convention of 1787. In this essay I wi l l respond in what I hope is an informative way. I wi l l not be able to utter sc ient i f ic generalizations because that would probably require the study of a great many conventions here and abroad; but I do propose to ask: Could we today make a comparable contribution? The answer to this question w i l l , I think, provide useful interpretations of the framers' accomplishments.

The distribution of income in a despotic society

Abstract: A distribution of income between rulers and subjects can be derived as an equilibrium of violence, rather than from considerations of marginal products of owned factors of production. Society is organized in ranks, and the occupants of each rank are provided with incomes just sufficient that obedience is preferable to rebellion. To incorporate such considerations into a model, it is necessary to recognize phenomena that are normally excluded from economic analysis: combat, the mortality rate (from natural causes and from violence) as a component of the utility function, and a rudimentary technology of control.

Explaining differences in state growth: Catching up versus Olson

Abstract: In this paper we have tested various explanations for differences in rates of economic growth across states. We found no evidence consistent with Olson's hypothesis that differences in state age (a proxy for the strength of special interest groups) can explain differences in state growth. Furthermore, our results indicate that a regression containing only initial income explains most of the variation in the growth of state income. In sum, a good part of the more rapid growth of southern and other fast-growing states is simply a convergence to the national average. This convergence is an expected result of basic economic theory, given free trade in goods and factors. Our results are, however, not necessarily a rejection of the Olson hypothesis. It may well be that the hypothesis should only be applied to comparisons between nation-states, not to comparisons between political divisions of the same nation-state. The institutional and political similarities of the American states may swamp the differences and make the Olson hypothesis inapplicable. The tendencies cited by Olson may indeed be present in the American economy, but their differential effect is much too small to explain any of the variation in economic performance across states.

Voting and not voting at the same time

Abstract: The marginal abstention hypothesis is that once at the polls, individuals are more likely to vote in the closer races on the ballot and to abstain from voting in the safer races. This hypothesis is a straightforward extension of the rational voting model. In previous empirical applications of the rational voter theory, voter turnout and voting in a given election are treated as one in the same. These studies have produced mixed results. When applied to the problem of explaining marginal voting behavior, the theory works well.

Markets and the measurement of value

Abstract: Consumer's surplus and the Hicksian measures of compensating and equivalent variation have a long history in empirical economic analysis. However, at both the theoretical and the empirical level, economists, psychologists, and public choice theorists have not been able to reach a significant consensus regarding the usefulness of these measures. Economic theorists have only recently dissected the differences which exist between alternative welfare measures in a systematic and transparent fashion. In Willig (1976), Hausman (1981), and Takayama (1984), the role of income in determining the correct, theoretical measurements of compensating and equivalent variations was exposed. During this same period of time, theoretical results obtained by the psychologists Kahneman and Tversky (1979) indicated that the fundamental structure of preferences upon which the theoretical economic results are based is flawed. The so-called prospect theory of decision developed by these authors indicated that measured of welfare based upon payment will differ from measures of welfare based upon compensation because of the fact that individuals will value losses at a greater marginal rate than gains. This difference was then predicted to dominate any income effect important in the economist 's model. Finally, this period recorded the emergence of many demand revealing processes which provide individuals with appropriate incentives to accurately reveal their preferences. As summarized in Coursey and Schulze (1986), one interpretation of the literature on incentive compatibility suggests a set of well defined guidelines for improving both the accuracy and validity of compensating and equivalent variation measures. These differences in professional preferences regarding what is important in improving the accuracy of economic welfare measurements led John

The rational behavior theory of voting participation: Evidence from the 1970 and 1982 elections

Abstract: In recent years a substantial literature on the determinants of voting participation has been developed. In many of these studies voting is assumed to be an expression of rational behavior. That is, people vote when they expect that the benefits will exceed the related costs. Voting is largely an act of consumption based upon the widely held belief that one should vote to fulfill a civic duty or upon some combination of personal characteristics which is sufficiently vague to make precise measurement impossible. The rational behavior theory, however, holds that voting is influenced at the margin by personal and environmental factors which incrementally affect expected benefits and costs, making the act of voting more or less rational. Those factors which increase expected benefits will, ceteris paribus, enhance the probability that one will vote. Those factors which increase expected costs will, of course, have the opposite effect. This study is presented as a primarily empirical contribution to the literature which assumes that, since voting is an expression of rational behavior, it can be modeled and tested using standard economic analysis and methodology.

The tradeoff between equality and efficiency: Short-run politics and long-run realities

Abstract: In concluding this paper the best way to emphasize what has been argued is to make as clear as possible what has not been argued. Nothing in the above argumentation or evidence can, or is intended to, deny that some social welfare programs genuinely serve the long-run interests of the poor. Undoubtedly such programs exist and can be identified as successful. Other programs exist, however, that are undeniably making the poor worse off. From the perspective of reducing income inequality it is obvious that the successful programs should be maintained, and even expanded in ways that further assist the poor, while the harmful programs should be terminated. Unfortunately it is simply not possible politically to select out those programs that do promote broad social goals, such as reducing poverty, while eliminating those programs that do not. This is a point that the present paper is intended to emphasize. Once you open up the political transfer process to one group, no matter how deserving that group may be, economic rents are generated that will motivate competition among politically organized interest groups. The inevitable result of this competition is a package of programs that serve a variety of interests, but which on balance do little, if anything to benefit those groups which it was our intention to assist. But even if it were widely known and accepted that the long-run distributional effects of public assistance were neutral, it would still be difficult politically to do nothing to ‘help’ the poor. Here we are faced with a particular case of what Buchanan (1977) has referred to as the Samaritan's dilemma. Actions that are motivated by feelings of compassion are difficult to resist even if the long-run effects are known to be detrimental to those who are the object of our compassion. There is no obvious escape from this dilemma, and this paper offers none. The purpose has been instead to provide an explanation of why these programs will become more politically entrenched as they become less effective at helping the poor.

Municipal annexation and local monopoly power

Abstract: We have found that the fiscal power of a city can be increased by extension of its borders within a land area that is homogeneous with respect to earning opportunities, even when numerous rival jurisdictions exist in the area. We hypothesized that extending municipal boundaries will have a positive effect on discretionary outlays and on expenditures per capita. The evidence presented supports these hypotheses. Furthermore, municipal wages appear to be significantly increased in cities experiencing annexation growth. Therefore, we would expect to find that municipal employees are more inclined to favor annexation than the rest of the electorate. From a policy standpoint, this study suggests that significant perverse effects on fiscal efficiency may follow adoption of legal reforms that facilitate the ability of municipalities to extend their borders, or that restrict the formation of new municipalities.