Voting Systems and Economic Impacts

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Questions and Answers

What is the primary characteristic of a plurality voting system?

Candidates must secure at least 50% of the votes.

The candidate with the most votes within a district wins. (correct)

Every vote carries equal weight across different districts.

Votes are distributed proportionally among candidates.

Which of the following voting systems requires a candidate to receive at least 50% + 1 vote to win?

Majority vote (correct)

Proportional representation

Cumulative voting

Plurality vote

What is one economic consequence of a plurality or majority voting system?

Uniform policy adoption across all districts.

Higher likelihood of pork barrel spending. (correct)

Greater public sector corruption.

Increased focus on national policies.

Which classification describes goods that can be excluded from consumption at a reasonable cost?

Excludable goods Signup and view all the answers

What is one role of the state as explained by Adam Smith?

Providing public goods. Signup and view all the answers

What is the purpose of the Kaldor-Hicks Compensation Criterion?

To assess the overall economic efficiency of a policy. Signup and view all the answers

Which concept underlies the Pareto efficiency criterion?

A situation where no individual can be made better off without making another worse off. Signup and view all the answers

What is a key aspect of public goods?

They are non-excludable and non-rivalrous in consumption. Signup and view all the answers

What does the concept of 'expected utility' involve?

Assessing utility based on possible future outcomes and their probabilities. Signup and view all the answers

Which of the following is an implication of the Condorcet Paradox?

Group preferences can be cyclic, leading to intransitive outcomes. Signup and view all the answers

What is the primary goal of political decision-making as described?

To identify the main idea without deeper analysis Signup and view all the answers

The idea of a social contract is primarily concerned with which of the following?

Establishing moral and political obligations among individuals. Signup and view all the answers

What is one challenge associated with the concept of externalities?

They result in market failures due to unaccounted effects on third parties. Signup and view all the answers

According to Downs' paradox of voting, what is a reason voters might still choose to vote?

A desire for social participation and obligation to vote Signup and view all the answers

Which mechanism is often suggested for internalizing externalities?

Implementing taxation or subsidies to alter behavior. Signup and view all the answers

What does the concept of the Condorcet Paradox illustrate about voting?

The sequence of voting can influence the outcome Signup and view all the answers

Which statement reflects a limitation of the Median Voter Theorem?

It is not applicable when preferences are not single-peaked Signup and view all the answers

What did Guttman (1998) suggest about majority thresholds in voting?

50+1 is more efficient to avoid reversal proposals Signup and view all the answers

According to Bechanan and Tullock, what effect does increasing the required majority have?

Raises time costs significantly Signup and view all the answers

In the context of voting, what is meant by 'expressive voting' as defined by Brennan and Buchanan?

Voting to achieve personal satisfaction or express discontent Signup and view all the answers

What is the implication of the Downs' realization regarding the effect of voting?

Low impact of individual votes discourages voter participation Signup and view all the answers

What is the result when small players free ride on larger players in a Nash Equilibrium situation?

The small players contribute nothing. Signup and view all the answers

Which mechanism can help overcome the free rider problem?

Social and ethical norms. Signup and view all the answers

What is a pecuniary externality?

A benefit or disadvantage experienced through market transactions. Signup and view all the answers

What typically happens in the tragedy of the commons situation?

Resources are overutilized due to no excludability. Signup and view all the answers

Which of the following is an example of a technological externality?

Firms emitting pollutants without compensation. Signup and view all the answers

In the example of Lea and Maurice, who would be considered the free rider?

Maurice's parents. Signup and view all the answers

What is one reason why small groups may have a higher incentive to provide public goods?

They see higher per capita benefits. Signup and view all the answers

Which of the following is not a characteristic of externalities?

They are always negative in impact. Signup and view all the answers

What is a potential negative consequence of offering a subsidy to reduce pollution?

It can lead to increased pollution if firms manipulate the system. Signup and view all the answers

What is a key characteristic of tradable permits?

The total amount of pollution is set by the government. Signup and view all the answers

What issue does the Cobra Effect illustrate in relation to environmental policies?

It shows how incentives can lead to unintended consequences. Signup and view all the answers

How does a subsidy aim to influence the marginal abatement cost (MAC) for firms?

By providing financial support for pollution reduction efforts. Signup and view all the answers

What is an advantage of using liability rules for externalities?

They can manage situations of low probability yet high impact. Signup and view all the answers

What is a significant drawback associated with the implementation of tradable permits?

They could lead to the creation of fraudulent emissions certificates. Signup and view all the answers

What aspect of green taxes does the Double Dividend Hypothesis primarily address?

They can lead to a sustainable revenue stream for governments. Signup and view all the answers

What is a challenge faced when governments utilize subsidies as a means for pollution reduction?

Firms may not invest in technology for pollution reduction. Signup and view all the answers

What does a value of $y = 0$ represent in the context of social welfare functions (SWF)?

Utilitarian SWF indicating cardinal unit comparability Signup and view all the answers

What is the fundamental assumption of constant relative risk aversion according to the Neumann-Morgenstern axioms?

Individuals' risk aversion scales with their income proportionally. Signup and view all the answers

How does the idea of the veil of ignorance impact social decision-making?

It assumes equal likelihood of being born into any social position. Signup and view all the answers

In the critique of social preferences, what does it mean if individual risk preferences are considered?

Social considerations are disregarded in decision-making. Signup and view all the answers

What is the implication of a certainty equivalent income (SE) ranking for income distributions?

Income distributions are ranked based on individuals' risk preferences. Signup and view all the answers

What does a high constant relative risk aversion coefficient (ε) imply about an individual's attitude towards risk?

The individual is highly risk-averse in relation to their income. Signup and view all the answers

In the context of the social contract, what was Hobbes' view of the state?

It is formed through a social contract governed by mutual consent. Signup and view all the answers

What scenario illustrates that a random placement into different countries can have varying benefits based on risk aversion levels?

Those with high risk aversion prefer placement into Germany over the USA. Signup and view all the answers

Study Notes

Economic Policy Fundamentals - Weichenrieder

Evaluating Government Policy:
- Pareto criterion: A move from allocation A to B is a social improvement if at least one person benefits and no one is worse off.
- Kaldor-Hicks Compensation Criterion (KHCC): A move from A to B is a social improvement if the winners could theoretically compensate the losers.
- Social Welfare Functions (SWF): Used to aggregate individual utilities into a social utility.
- Measurement of Individual Utility: Ordinal (ranking only) vs. Cardinal (magnitude differences).
- Comparability of Individual Utility: Ordinal (comparing better/worse) vs. Cardinal (comparing magnitude of difference in utility).
- Different SWF types: Rawlsian (focuses on the least well-off), Utilitarian (sums individual utilities), and Mixed.

Hobbes (1651): The state arises from a voluntary agreement where individuals give up some rights for security and order.
Rawls principle of justice: prioritizes the least well-off.
Buchanan/Tullock (Calculus of Consent 1962): Examines the trade-off between decision costs and the potential costs of losing voters. A necessary condition for a social contract is unanimity.

Kenneth Arrow's Impossibility Theorem: It is impossible to create a social ordering that satisfies certain conditions including unanimity (Pareto principle), and nondictatorship, when based on ordinal preferences.

Political Decision Making

Elections & Majority Requirement: The required majority to win an election can affect the cost of the decision. Single majority reduces this cost, but might not always have a decisive result.
Downs Paradox of Voting (1957): The rational decision to not vote as the cost of voting (time, effort, etc.) may outweigh the potential impact of one vote.
Condorcet Paradox: Cycles may arise in majority voting, where a majority of voters prefer option 1 to option 2, option 2 to option 3 and option 3 to option 1, meaning there's no unique winning choice.
Median Voter Theorem (Black 1948): When voter preferences follow a single-peaked pattern along a single-policy dimension and voting follows a majority rule, the median voter's preference tends to be the decisive preference.
Probabilistic Voting: Likelihood of voting for a platform is related to the proximity of the platform's policies to voter preferences.

Public Goods

Classification of Goods: Public goods are non-rivalrous (one person's consumption doesn't reduce another's) and non-excludable (cannot be prevented from being consumed).
Private Goods: rivalrous and excludable
Club Goods: non-rivalrous but excludable
Common Goods: rivalrous but not excludable

Public Goods Provision

Conditions for Optimal Public Goods Provision: Sum of marginal rate of substitutions between public and private goods equals marginal rate of transformation.
Private Provision of Public Goods: Free-rider problem means underprovision of the good.

Externalities

Benefits or disadvantages imposed on a third party not factored into the market.
Negative: Pollution
Positive: Education
Remedies: Command-and-control, Liability rules, or Pigouvian taxes. Pigouvian tax is levied to internalize an externality with consideration of marginal rate of abatement costs).
The Tragedy of the commons: Overuse of a shared resource (e.g. fish in the ocean, forests).

Internalization Strategies

Defining property rights and establishing contracts among individuals and between individuals and the state can promote efficiency in a market.
Coase Theorem: With well-defined property rights and no transaction costs, externalities can be internalized efficiently through bargaining, regardless of initial allocation of property rights.

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Description

This quiz explores key concepts of voting systems, including plurality and majority voting mechanisms, their economic consequences, and relates them to economic theories by Adam Smith. Test your knowledge on how these systems influence governance and resource allocation.