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Public Choice and Voter Preferences

Lecture at Lincoln University, September 2012

Eric Crampton

on 18 September 2012

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Transcript of Public Choice and Voter Preferences

Dr. Eric Crampton,
Senior Lecturer,
Department of Economics and Finance,
University of Canterbury Public Choice and Voter Preferences Lincoln University
September 2012 An Introduction to Public Choice Market Failure and Government Failure It is very hard to move from individual to social preferences without ... problems. Do collective preferences exist? Even if policy collapses to a single dimension, outcomes remain contingent.

Choice of electoral process and legislative system strongly affect results. Legislative structure and outcomes Anthony Downs: if political information provides very little personal benefit, ignorance is rational. Voter knowledge and Rational Ignorance Tullock's Seminal Insight:
You can't even give something away. Rent Seeking Grossman and Helpman's Menu Auction model Political Competition and
Voter Knowledge Is politics really so much worse than markets? Wittman's Efficient Markets Critique If pleasant beliefs are cheap, will we not buy some? Rational Irrationality
and the Failure of Cueing Imperfect information
Lack of competition
Public goods We all know markets can fail... But are we committing the Nirvana Fallacy? Do voters know anything? Imperfect Information But what of the costs of policy on minorities? Externalities Do you have more choice in breakfast cereal,
or in political parties? Imperfect competition But governments also fail to provide particular kinds of public goods:
Sorting out EQC rather than putting it in the too-hard basket in 2009
Increasing the retirement age before a crisis hits
Good policy is a public good! Public Goods Avoid three fallacies:
The grass is always greener
The fallacy of the free lunch
The 'People Could Be Different' fallacy Demsetz: Comparative Institutional Analysis Consider 60 voters, 3 options:
23 voters say A > C > B
19 voters say B > C > A
16 voters say C > B > A
2 voters say C > A > B

... A wins, 23:19! Yay! But... Why not just vote? BUT... 23 voters say A > C > B
19 voters say B > C > A
16 voters say C > B > A
2 voters say C > A > B

B beats A 35:25
And, C beats A 37:23 In this case, the system:
Chose A, the Condorcet Loser
Failed to choose C, the Condorcet Winner! Plurality voting, First Past the Post Sometimes, there's no core Intransitivity 23 voters: A > B > C
17 voters: B > C > A
2 voters: B > A > C
10 voters: C > A > B
8 voters: C > B > A A > B: 33-27
B > C: 42-18
C > A: 35-25 The McKelvey Result: Global Intransitivity Unless there's a median in all directions! Plurality systems yield:
two-party structures, and
competition for the median voter Duverger's Law Compared to FPTP systems, PR yields:
More demographically based transfers
Fewer geographically based transfers
Higher spending
Higher deficits FPTP and PR: Empirics 94% knew President's 4-yr term
89% could name Governor
78% could name Vice-President
69% knew U.S. House Majority party
52% knew each state has 2 senators Americans don't know much
...about politics 46% could name Congressman
39% could name both Senators
30% knew House term 2 years •84% knew Labour was in the prior govt
•83% agreed NZ is in the WTO
•81% said term of Parliament is not 4 years
•68% agreed enrolment is compulsory
•36% agreed Treasury not mainly responsible for interest rates
•28% agreed non-citizens can vote
•55% correctly identified MMP threshold (multi-choice!)
•53% identified party vote as most important
[extracted from 2008 NZES] ...but neither do Kiwis! Of those supporting FPP:
21% said we have the right number of parties or too few
27% said they prefer coalition govts
39% said a party getting 40% of the vote should get about 40% of the seats

Of those supporting MMP
56% said getting 40% of vote should get 40% of seats; 27% said more than 40%
37% said we have too many parties
8% said they prefer single-party govt
[NZES 2008] Electoral Law referendum PEW / California Academy of Sciences 2008:
53% of Americans knew how long it takes for the Earth to revolve around the sun
59% knew people and dinosaurs didn't coexist
47% roughly approximated proportion of earth covered by water. Don't know much about science books Programme Est Proportion Actual Proportion
Medicare (elderly) 20% 12.8%
Medicaid (poor) 15% 8.2%
Social Security 20% 19.6%
DoD Defence 30% 18.7%
Foreign Aid 10% 0.8%
Food stamps 10% 2.8%
Public Broadcasting 5% 0.1% Don't know what's in the budget The party vote is more important under MMP. BUT:
Only 46% get it right
Of those saying MMP is easy or very easy, only 47.5% get it right and more get it strictly wrong.
25% understood the dual threshold; those saying MMP is easy were more likely to get it wrong. Colmar-Brunton 2008 Olson's Logic of Collective Action

Principal-Agent problems in government Consequences of voter ignorance 13,237 NYC taxicab medallions exist.
Last auction price: $1 million each.

Aggregate value of Canadian Dairy Quota:
Over $20 billion And when the rent is capitalised...
the Transitional Gains Trap But is ignorance really enough? Voter ignorance makes it all possible Voters may hold knowledge in inchoate form
Informed judgments can be made with little information
So long as errors are unbiased, who cares? Is voter ignorance such a serious problem? Reputation matters
Elections are hotly contested
Best evidence says policy follows what voters want! Political markets are competitive! Logrolling ensures preference intensity matters.
Majority rule is cheaper than unanimity Politics reduces transaction costs! US Voters:
Are Pessimistic
Biased toward make-work projects
Do not trust markets
Do not trust foreigners On questions of positive economics: The New Zealand Median voter:
Neutral on wage and price controls
Supports import controls
Neutral on globalisation
Supports free trade
Supports tax cuts
Says government is responsible for job-creation 2008 NZES data: A standard deviation decrease in
political knowledge correlates with:
Quarter sd reduction in "economic thinking"
Fifth sd increased support for death penalty
Increased support for combination of higher spending and lower taxes
Reduced support for SOEs
Angry about "Dole Bludgers" 2005 NZES data Membership in organisations that could provide voting clues often worsened ignorance's effects And, Cueing doesn't save us Fails when you don't know who to blame. Economic retrospective voting
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