Showing papers in "Public Choice in 1990"

Rent-seeking for pure public goods*

Abstract: In this paper we present a formal analysis of rent-seeking for public goods by two or more groups with different numbers of individuals. We begin by considering equally wealthy groups under risk neutrality, a case which constitutes our basic model. Several surprising and interesting results emerge from the analysis of this basic case. The problem is then extended to deal with (a) groups with different wealth levels, and (b) risk aversion. This last extension brings about a further crop of interesting and useful results.

The political economy of environmental regulation: Towards a unifying framework

Abstract: There are several theories that attempt to explain various aspects of environmental policy. Building on insights from this theoretical work, and recent advances in our understanding of instrument performance, this paper constructs a more complete theory of environmental regulation. There are two primary contributions of this research. The first is to provide more satisfactory explanations for a number of observed patterns of environmental policy. For example, there is, as yet, no satisfactory theory about the emergence of incentive-based mechanisms, such as marketable permits and effluent fees. The second contribution of this paper is to develop a parsimonious framework for understanding many important aspects of environmental policy. This framework suggests the outputs of environmental policy emerge from a struggle between key interest groups.

Susceptibility to manipulation

Abstract: All positional voting procedures can be manipulated, so it is natural to question whether some of these systems are more susceptible to being manipulated than others. In this essay, this susceptibility factor is measured for strategic action involving small groups. It is shown that the system least susceptible to micro manipulations for n = 3 candidates is the Borda Count (BC). The optimal choice changes with n, but the analysis shows that the BC always fares fairly well. On the other hand, the plurality and anti-plurality vote as well as multiple voting systems, such as approval voting and cumulative voting, always fare quite poorly with respect to susceptibility. Finally, it is shown why it is possible to justify any voting method by choosing an appropriate measure of susceptibility and imposing the appropriate assumptions on the profiles of voters. This statement emphasizes the importance of the basic assumptions of neutrality used throughout this essay.

The last period problem in politics: Do congressional representatives not subject to a reelection constraint alter their voting behavior?

Abstract: This study of roll call voting behavior in the U.S. House of Representatives empirically documents the existence of an important simultaneity bias in the heretofore much-investigated relationship between legislator ideological shirking and the security with which a legislator holds office. The results indicate that while greater security allows a policymaker more leeway for ideological consumption, increases in ideological on-the-job consumption also diminish a policymaker's security in office. It is because natural selection is at work in the market for legislators and because retiring legislators, prior to the retirement decision, are “fitter” when it comes to representing their constituents in roll call voting, that the voting behavior displayed by retirers following their decision to quit House office does not differ appreciably from the voting behavior displayed by nonretirers. Much as academics may publish less in the years immediately after obtaining tenure even though they continue to publish at least as much as the average assistant professor, retiring members of the House appear to shirk their constituents' interests more after deciding to retire even though the amount of shirking they undertake does not differ markedly from the amount of shirking undertaken by the average nonretirer.

The simple analytics of slack-maximizing bureaucracy

Abstract: Using a utility-based graphical model of bureaucratic choice, this paper develops four empirical predictions from the theory of slack-maximizing bureaucracy. These predictions are compared to those resulting from the Niskanen budget-maximizing model of bureaucracy. Slack-maximizing and budget-maximizing bureaucracies are similar in their response to changes in cost and in their generation of “flypaper effects”, but they differ in their responses to matching and lump-sum grants.

The impact of citizen influence on local government expenditure

Abstract: This paper examines the impact of three measures of direct citizen influence — the initiative, referendum, and recall — on the level of local public expenditure for a national sample of communities with 10,000 persons or more. Two types of statistical tests are performed to analyze the role of the median voter model and to measure the effect of these governmental characteristics on the level of public spending.

The rational timing of parliamentary elections

Abstract: This paper presents a rational choice model for the timing of parliamentary elections in political systems where the government has the option of calling an early election. The optimal timing of elections involves the government weighing the benefits of calling an election versus the costs and is modelled mathematically as an optimal stopping problem. The model implies that the timing of elections depends upon time left in the government's term, the degree of electoral uncertainty, the volatility of government popularity, the government's time rate of discount, and institutional constraints such as the length of term and whether the government is likely to be forced from power by a vote of no confidence.

Fiscal variables and growth: A cross-sectional analysis

Abstract: This paper examines the impact of the key fiscal variables — taxes, expenditures, and deficits — on economic growth performance, using a reduced-form model and cross-sectional data for a sample of 76 developed and developing countries for the period 1972–81. Its simultaneous consideration of fiscal variables overturns the results of some existing studies. While taxes seem negatively associated with GDP growth, they are concommitant with a higher rate of growth when their benefits in terms of reducing deficits are taken into account. The positive association of government expenditures with GDP growth is rendered negative when their impact on deficits are factored in. Deficits are contractionary, and deficit-reducing tax increases and expenditure cuts are positively associated with growth. A balanced budget expansion of taxes and expenditures is negatively associated with growth. When separating the sample into low-, middle- and high-income countries, these results hold only for the second group indicating that the level of development influences the linkages between fiscal variables and GDP growth.

The power of the proposal maker in a model of endogenous agenda formation

Abstract: In a distributive setting, this study examines a voting procedure for which agenda formation is endogenous. It is found, not surprisingly, that agenda formation is another avenue for strategic manipulation of the voting process and provides the member to first take the floor an asymmetric advantage. What is surprising is the degree of this advantage. We find that the initial proposal maker earns a share of the fixed resource exceeding 1 - α for an α-majority rule and this is regardless of the number of members. The voting rule is found to be an effective instrument in at least partially offsetting the power of the proposal maker while maintaining the stability of the voting process.

Shirking, representation, and Congressional behavior: Voting on the 1983 amendments to the Social Security Act

Abstract: Our central goals at the outset of the paper were three: (1) to report on the relative significance of a sophisticated measure of constituent economic interest and a commonly used variable, ADA score, that purports to measure the personal ideology of the candidate; (2) demonstrate that the constituent economic interest variable should be adjusted to account for the fact thatvoters, not citizens, are the only effective principals in influencing a legislator's voting activities; and (3) call into question, on both theoretical and empirical grounds, the claim that legislators shirk their responsibilities to voters by voting their own ideological preferences. In order to evaluate our efforts, consider Table 5. For a large majority (15) of the 18 relevant runs, the ideological variable is significant. Our measure of constituent economic interests does not eliminate the explanatory power of the ideological voting variable, but this does not indicate shirking. As opposed to shirking, we may observe ideological voting because (1) it provides brand name capital, (2) it represents the ideological preferences of the constituents, or (3) it acts as a measure of median voter economic preferences. Further, ADA scores do not allow us to differentiate between these competing explanations. For 11 of the 18 models one of the economic variables accounts for a significant portion of the variance in the dependent variables. The results derived from our measure of constituent economic interests contradict most findings of the LASI school and raise questions about the validity of the empirical characterization of constituent interests in that research. A breakdown of the results by chamber indicates that significant differences in the degree of ideological voting between the House and Senate may exist. This is important in that most research has focused only on the Senate where ideological voting is more prevalent. For the House, Table 5 reveals the constituent economic interest variable isalways significant, and in fully one-half of the relevant regressions it is theonly significant variable, knocking ADA out of the race. As noted earlier, the insignificance of ADA is some indication of the absence of ideological shirking though its significance may indicate only measurement error, voter ideology, or reputational capital. In the Senate, the results are more evenly split, though it is clear that the adjusted (for reelection constituency) economic interest variable is an improvement. ADA is significant in all 12 Senate regressions, and the respective economic variables are significant in 5, or just under half. This side-by-side comparison is provocative, though it remains to be tested in detail. But our preliminary conclusions can be stated as follows. First, as Peltzman (1984) suggested, a better specification of economic interest and constituency representation reduces, though it does not eliminate, the role of the ADA variable in the Senate. Second, we find evidence that ideological shirking, if it exists, is much smaller in the House. In fact, from an institutional perspective, it can be argued that economic interests are dominant, since House districts are smaller and more homogeneous. Further, the shorter terms for House members may make them more directly accountable to voters, and smaller groups of voters may force a lesser reliance on pure ideological campaigning and require a more personal presentation of self.

The bias in centrally planned prices

Abstract: The historical verdict must be surely in on the great central planning experiment Soviet block economies are fleeing central planning philosophy in droves; nonetheless, the brute fact constraining movement from central planning to market economy is the necessity of vastly increasing prices (Kurtzman, 1988). The point of this note is to look back on the central planning debate of the 1930s and 40s with the perfect wisdom of hindsight and ask why none of the participants predicted this answer. By an easy process of elimination, we focus on the anti-central planning side of the debate; after all, if disinterested members of the pro-central planning side of the debate; after all, if disinterested members of the pro-central planning side had reached the correct answer, surely they would have switched sides! The brunt of the anti-central planning position was carried by two alone, von Mises and Hayek, so we reconsider their arguments using a bit of statistical notation to sharpen the points at issue. The argument is that von Mises and Hayek focused on the complex technical issues in involved in central planning and ignored the simple incentives facing planners.' A concluding speculation is offered as to why neither von Mises nor Hayek got it right.

Government and growth: Cross-sectional evidence*

Abstract: Economic theory suggests that government contributes to total economic growth in two ways: positively, through the provision of Pigovian public goods and services; and negatively, through the inefficient provision of such goods and services and the distortionary effects attendant with their provision. This paper develops a model that differentiates the two effects and empirically tests the model for a sample of forty-eight countries. Evidence suggests that the net effect of government on growth is positive, but that the negative effects are not insignificant. Though growth in government output contributes to total economic growth, at the margin this is approximately offset by distortionary effects attendant with increases in the relative size of government.

A brief empirical note on the Tiebout hypothesis and state income tax policies

Abstract: Some years ago, Tiebout (1956: 418) hypothesized that "... the consumervoter may be viewed as picking that community which best satisfies his preference pattern for public goods ... the consumer-voter moves to that community whose local government best satisfies his set of preferences." Based upon this argument by Tiebout, this brief note seeks to empirically examine the impact of state income tax policy upon the geographic mobility of consumer-voters in the United States; more specifically, we attempt to determine whether the existence of a state income tax significantly influences the in-migration of consumer-voters. Naturally, the analysis includes suitable non-tax control variables to reflect other factors which may influence the migration decision calculus.

Efficient use of reference group cues in a single dimension

Abstract: If there are groups whose endorsements voters can use as positive (or negative) cues, we demonstrate that voters do not need to know anything directly about candidate positions to be able to identify the candidate whose issue positions and performance is likely to be closest to the voter's own preferences. In one dimension we show that, given certain simplifying assumptions, voters are best off adopting the choice recommended by the single reference group to which they are closest. We also show that even a decision by reference groups not to endorse any candidate may be informative to voters.

The layered prisoners' dilemma: Ingroup versus macro-efficiency

Abstract: In the N-prisoners' dilemma (NPD), cooperation produces ingroup efficiency. But if ingroup gains from cooperation are less than outgroup losses, then macro-efficiency for the collectivity (defined as ingroup plus outgroup) is harmed. We call this situation a layered prisoners' dilemma (LPD). The LPD models diverse real world situations — from OPEC's effect on consumers to interest groups' effect on citizens.

On the efficiency of law: A public choice perspective

Abstract: Economists have not yet developed a comprehensive theoretical framework, incorporating transaction-cost economics within a public choice perspective, for predicting when there will be an efficiency problem with the law. Transaction-cost reasoning and the rent-seeking insight have not been applied systematically in a dynamic institutional context to evaluate when the law will be used to increase (or not minimize) problems of bounded rationality and opportunism. This paper takes a first step at identifying and remedying this deficiency. The paper first provides a critical review of relevant theoretical contributions made by Becker (1983, 1985), Posner (1977), Priest (1977), Rubin (1977, 1982), Williamson (1975, 1985), and others. We then show how analysis of the efficiency of law can be synthesized into a broader whole by incorporating transaction-cost economics more fully into existing understanding of rentseeking in the political realm. Thus, within the public choice paradigm, this paper develops a deeper transaction-cost analysis of the efficiency of law. Building on prior research by the authors (Crew and Rowley, 1988a, 1988b; Twight, 1983, 1988), the paper identifies variables that position legal rules on a spectrum that ranges from those that are predominantly transaction-cost

Allocation patterns of PAC monies: The U.S. Senate

Abstract: In the pages that follow we seek to rectify both these shortcomings by looking at a different institution (the U.S. Senate) and by examining a longer timeseries (1978-1986) than has been available before in the literature. Our results differ in important respects from existing work estimating similar models in the House of Representatives. We are led ultimately to question some important, and commonly accepted, theoretical claims based on the implicit assumption that the institutional structure of the two chambers is identical. Further, because we find that committee assignments are less important to members than is often claimed, we find some support for Krehbiel's (forthcoming) recent as

State lotteries as duopoly transfer mechanisms

Abstract: Government-sponsored lotteries can be traced back at least as far as Caesar Augustus, who instituted legalized gambling for the purpose of rebuilding Rome (Mote, 1984) We are also told that Queen Elizabeth introduced a lottery in 1549, and that lotteries were used to provide financial support for the Virginia Company's founding of Jamestown (Johnson, 1960) No less authority on the topic than Captain John Smith reported that lotteries were "the reall and substantial food by which Virginia has been nourished" (Johnson, 1960: 161) Later, lotteries were used by the Continental Congress and several colonies to fund the Revolutionary War, and such venerable institutions as Harvard, Yale, Princeton, and Dartmouth benefited from their use (Kaplan, 1984) In more recent times, lotteries provided an important source of revenues for the depressed post-Civil War Southern states But criticism regarding their moral implications and corruption in their operation is given as the explanation for Congressional action that foreclosed state lotteries in 1895 by prohibiting the use of the mail for distributing lottery tickets and information (Tillett, 1983) In that same year, Congress passed a national income tax, which was struck down by the court Some might argue that the demise of state lotteries was related to the federal government's attempt to extend its ability to collect

Boards of trustees, agency problems, and university output

Abstract: The analysis and empirical evidence in this paper indicate that the structure of the boards of trustees of state universities influences the provision of higher education. The structure of the boards is important because it helps to define the constraints on the board members and on the internal agents of the universities. An implication of this study is that public universities can be made to function more like private ones by placing them under separate governing boards. These results are especially interesting when examining the trends regarding board structures. The trend over this century across the states has been toward increasing the number of universities under the jurisdiction of a single board. This analysis suggests that the trend is a response to political pressure from educators, not from taxpayers and consumers of higher education.

Protectionist policies as the regulation of international industry

Abstract: The political feasibility of protectionist policies that regulate international industry derives from the absence of overt collusion among domestic import-competing producers. The regulation of international industry cannot be explicit since governments would thereby be perceived to be approving (or instigating) international collusion. Hence, voluntary export restraints have been popularly presented with a focus on the difficulties confronted by domestic import-competing producers and a de-emphasis on the mutual gains to domestic and foreign producers from monitoring by a foreign government of a restrictive export cartel arrangement. Similarly, trigger-price mechanisms have popularly been explained in terms of the need for anti-dumping measures to preserve ‘fair’ competition. Likewise, the involuntary export tax derived in the first instance from an administratively validated (but, as demonstrated by Kalt's econometric analysis, contentious) complaint of ‘unfair’ foreign competition. Voluntary export restraints, trigger-price mechanisms, and involuntary export taxes are however protectionist devices, the beneficiaries of which can transcend national jurisdictions, and which have in common the characteristic that the gains to domestic industry interests derive from the regulation of foreign competitors.

Power indices and probabilistic voting assumptions

Abstract: This paper compares the theoretical bases of the Shapley-Shubik and Banzhaf indices of voting power for a legislature with weighted voting. Definitions based on probabilistic-voting assumptions, useful both as behavioral descriptions and for computation in empirical applications, are compared in terms of necessary and sufficient conditions on the choice of voting probabilities. It is shown that the Shapley-Shubik index requires stronger conditions than the Banzhaf index: the former that voting probabilities be chosen by all players from a common uniform distribution on the unit interval, the latter only that voting probabilities be selected independently from any set of distributions (on the unit interval) which have a common mean of 1/2. This result has a bearing on the theoretical criteria by which one may choose between the two indices in a voting context.

Bureaucracy, inefficiency, and time

Abstract: This paper examines the bureaucrat's choice between devoting resources to economic rents (organizational slack) and maximizing the budget of the agency. A new model of bureaucracy is developed using utility rather than a demand function as its foundation. It is shown that increases in income alter the slack-budget constraint to favor organizational slack over budget-maximization. Modern federal bureaucracies in the U.S. are predicted to be slack-maximizing and X-inefficient.

Explanations of protectionism in international trade votes

Abstract: In this study, we analyze the voting records of U.S. senators on three recent international trade bills. Our objective is to assess the importance of ideology and constituent interest as forces that influence protectionist vs. free trade voting behavior. The methodology uses discriminant analysis supplemented with expert judgement. The first conclusion is that ideology is the more important force in generic protectionism issues, and local constituent interests are more important for commodity-specific issues. Second, we find that protectionism is especially associated with liberal ideology, high import impact, and low export dependence. Although the discriminant analysis outperforms expert judgement in classifying protectionist vs. free trade votes in two of the three bills studied, the best explanation is obtained by using both methods together.

Committees and the core of the Constitution

Abstract: An ongoing debate in the formal theory of legislatures involves the question of why these institutions (apparently) manifest so much stability. That is, why do the institutions not continually upset policies adopted only a short time before? A large number of answers have been advanced. This paper proposes that the stability derives from the interaction of two factors, (i) the fundamen- tal constitutional rules (bicameralism, executive veto, and veto override) that structure the legisla- tive process, and (ii) the committee systems endowed with veto powers that many American legisla- tures have developed. This interaction, we argue, can create a core - a set of undominated points - so large that even a substantial change in the legislature's members (reflecting electoral out- comes, for example) will be unlikely to shift its location enough for the status quo to be upset.

Decentralizing an economy: The role of bureaucratic corruption in China's economic reforms

Abstract: Government interventions in markets through price, quality, and quantity controls impose disequilibria on that process by disallowing cash price fluctuations to clear markets. Contracting parties are thus forced to create alternative exchange channels to achieve consumption and production equilibria. The process of solving government-induced market disequilibria using alternative (and particularly, sub-rosa) methods of decentralized transacting is popularly termed corruption. In the case of centrally controlled economies, the most prominent practitioners of corruption are the officials of the government. Their simultaneous actions of enforcing and breaking the system's rules substantially influence the level and distribution of income in an economy. For these reasons, its study is important. In this note I discuss the role of corruption within one economy in particular - that of the People's Republic of China. Since 1949, the People's Republic of China has been organised and administered (at least on paper and, depending on the year, to a greater or lesser degree) as a centrally-controlled economy. Beginning in 1978, however, Deng Xiaoping and his co-leaders set out to re-establish some private incentives in China's economy. Their intentions were to assert individuals' right to transact with each other and therefore ease problems encountered in the central coordination of agricultural and industrial production. To do this, they re-established some private property rights and allowed decentralized markets a larger role in allocating scarce goods. Within these markets they allowed prices to fluctuate. (They by no means, however, relinquished all control. Still today, the government maintains economic plans and quantity targets and closely monitors price fluctuations.) These reforms, begun in 1978 and on-going today, have provoked a barrage of articles decrying the extensive amount of corruption they supposedly have incited within the Chinese system. Journalistic criticism comes not only from international but domestic sources as well. Mainland newspapers, for example, document corruption's various forms. In a single month (December of 1985)

The theory of economic regulation and public choice and the determinants of public sector bargaining legislation

Abstract: In this study we used the theory of economic regulation and public choice to derive a model to explain the pattern of public sector bargaining laws among the states. We find this type of legislation is influenced by the following demand factors: (1) the extent of public sector union membership, which represents the interest group hypothesis, has a positive influence on pro-union legislation; (2) the extent of employer opposition to unions, as measured by unfair labor practice charges against employers in representation elections, has a negative effect on bargaining laws; (3) two taste variables — the salaries of public employees and the percent of nonwhite employment in the state — have a positive influence on these laws. A result which will be surprising to many people is that the extent of private sector union membership has no significant influence on the passage of public sector bargaining legislation.

Executive budget proposal, executive veto, legislative override, and uncertainty: A comparative analysis of the budgetary process

Abstract: This study examines the roles of the executive budgetary proposal, the executive veto, the legislative override, and legislative uncertainty about the executive's preferences in determining the outcome of a budgetary process. A sequential model of the budgetary process with three institutional agents — a legislature, an appropriations committee, and an executive — is presented. To focus attention on the executive proposal, the veto, the override provision, and uncertainty, simplifying assumptions are made: (1) the appropriations committee has monopoly agenda power, and (2) there is a closed amendment control rule. In order to characterize sequential equilibria of various combinations of veto rules and override provisions, we examine a particular arrangement of agents' preferences and a two item budget. The results demonstrate that the final budget depends critically on the executive proposal, the executive veto rule, the override provision, and the uncertainty. We achieve three striking results. First, the executive proposal may be effective in reducing the frequency of the exercised veto. Second, for a given override provision, a movement from the item veto to the item reduction veto leaves the executive worse off in some cases. Third, with the same change in institutions, the government budget may increase.

Efficient rent-seeking under varying cost structures

Abstract: The rent-seeking paradigm, which was introduced by Tullock (1967), has proven useful for exploring a variety of economic decisions that lie outside the traditional profit maximizing framework. Early applications of Tullock’s insight (Becker, 1968; Krueger, 1974; Posner, 1975; Demsetz, 1976; Foster, 1981 and others) usually assumed the entire value of the rent would be dissipated by competition following the fashion of economic profits in competitive markets. In 1980 Tullock structured a simple game reflecting the decisions made in rent-seeking. The results generated by his model suggest residual rents may accrue to rent-seekers and, under certain conditions, resist dissipation. A number of studies followed Tullock’s 1980 paper (Corcoran, 1984; Corcoran and Karels, 1985; Higgins, Shugart and Tollison, 1985; Tullock, 1984, 1985, and 1987) which explore the dissipation of excess rents under various assumptions.

The structure of the Banks set

Abstract: We consider a new solution set for majority voting tournaments recently proposed by Banks (1985), and we examine its internal structure. In particular, we demonstrate that, in the absence of a Condorcet winner, there is always a cycle including precisely the points in the Banks set. We introduce the concept of "external stability" in order to facilitate analysis.

Cycle avoiding trajectories, strategic agendas, and the duality of memory and foresight: An informal exposition*

Abstract: This paper considers the notion of cycle avoiding trajectories in majority voting tournaments and shows that they underlie and guide several apparently disparate voting processes. The set of alternatives that are maximal with respect to such trajectories constitutes a new solution set of considerable significance. It may be dubbed the Banks set, in recognition of the important paper by Banks (1985) that first made use of this set. The purpose of this paper is to informally demonstrate that the Banks set is a solution set of broad relevance for understanding group decision making in both cooperative and non-cooperative settings and under both sincere and sophisticated voting. In addition, we show how sincere and sophisticated voting processes can be viewed as mirror images of one another — embodying respectively, “dmemory” and “foresight.” We also show how to develop the idea of a “sophisticated agenda,” one in which the choice of what alternatives to propose is itself a matter of strategic calculation.