Legislative and Administrative Government Lecture Practice Flashcards

This set of 80 practice flashcards covers the comprehensive material from the Legislative and Administrative Government lecture notes, including theories of regulation, bureaucracy, voting, market failures, and theories of justice.

What is the primary insight of George Stigler's 'Theory of Economic Regulation' (1971)?

Regulation should be studied as how it is actually formulated rather than how it should be formulated (normative vs positive).

According to Stigler, what group is typically favored in regulation?

Producers are favored over consumers due to Olson's logic of collective action.

Why do producers prefer trade barriers to subsidies according to Stigler?

Trade barriers are often less visible to consumers and provide more secure protection for producer interests.

What is the innovation of Sam Peltzman's 1976 model 'Towards a More General Theory of Regulation'?

It explicitly recognizes the economic interests of various actors affected by policy and asks who benefits and who loses.

What does an 'Isovote' curve represent in the Peltzman model?

A curve showing combinations of support from both industry and consumers that yield the same number of votes or resources for a regulator.

In Peltzman's model, what determines which industries are most likely to be regulated?

The gains to regulation based on the difference between the private market price ($Peq$) and either monopoly ($PMon$) or perfect competition ($Ppc$) prices.

What is the key mechanic in Gary Becker's 1983 model of pressure groups?

Interest groups compete for political influence, and groups are sensitive to the deadweight loss (DWL) created by policies.

According to Becker, why is S < R in redistribution where S is subsidy and R is tax revenue?

Because of deadweight loss (DWL) incurred during the transfer process.

What does Becker's model imply about competition among interest groups?

It favors outcomes with lower deadweight loss because consumers are more sensitive to DWL, which counteracts Olson's logic.

How did Judge Richard Posner (1971) interpret 'taxation by regulation'?

As a means for the government to cross-subsidize and redistribute resources through regulatory policy.

What is the Virginia School's primary critique of the Chicago School approach?

The Virginia School concludes that institutional constraints, such as voting and informational inefficiencies, are serious problems not captured by the neutral broker equilibrium approach.

What are the four broad approaches to government activity mentioned in the notes?

1) Best of All Possible Worlds (Good Fairy), 2) Efficiency model (Semi-good Fairy), 3) Best of All Possible Worlds but things go wrong, 4) Politics Without Romance (Wicked Witch).

What is the 'Politics Without Romance' view of elected suppliers?

Politicians are rational, self-interested actors who respond to incentives to discover services in demand and transfer costs to third parties.

What are the components of the 'Calculus of US Elections' for a rational voter according to Downs (1957)?

A voter considers the expected benefits ($Exp B$) of their candidate winning vs the cost of voting ($Cv$).

How is 'Rational Ignorance' (apathy) defined in Downs' theory?

Individuals choose not to become informed because the cost of information exceeds the marginal value of their single vote.

What is the 'expressive voting' formula discussed as a problem for Downs' model?

The idea that people vote for civic duty or expression, represented as PrBr - Cr + D > 0.

What is the difference between naturally and artificially created rents?

Natural rents arise from unique resources or luck; artificial rents are created by government actions, such as granting a monopoly.

How did Gordon Tullock modify the standard welfare loss analysis of monopoly?

He argued that the 'transfer' of monopoly rent is part of the inefficiency (DWL) as firms spend resources to compete for it through lobbying or bribes.

What are the three types of benefits for interest group membership in Salisbury's entrepreneurial model?

a) Material benefit, b) Purposive benefit, and c) Solidary benefit.

What is Mancur Olson's hypothesis in 'Rise and Decline of Nations' (1982)?

Older, more stable political systems tend to accumulate more interest groups that seek rents, eventually leading to economic decline.

What is the utility function of a politician as proposed by A. Breton (1974)?

$Up = Up(E, am)$, where $E$ is the subjective probability of (re)election and $am$ represents all other variables like personal power or ideas.

What is the 'Principal-Agent problem' in the context of bureaucracy?

The conflict of interest and information asymmetry between elected legislators (principals) and appointed bureaucrats (agents).

Who is often called the 'father' of public administration?

Woodrow Wilson.

What is Max Weber's 1922 view of authority in modern society?

Authority is legal and rational, implying a rule-based 'top-down' government managed through laws.

What does Jeffrey Berry's 'Iron Triangle' model describe?

An image of agency capture by clientele groups involving highly restricted participation and stable status quo decision-making.

What was the main hypothesis of Niskanen's 1971 model of bureaucracy?

Bureaucrats act to maximize their budgets to increase their own pay, power, prestige, and perks.

Why is Niskanen's model described as a 'bilateral monopoly'?

Because there is only one bureau supplier and only one sponsor (the legislature) as the consumer.

What is the 'measurement problem' in bureaucracy according to Niskanen?

It is difficult to define 'quantity' as 'output' (e.g., body counts in war), so focus shifts to counting inputs.

What are the '4 P's' that make up a bureaucrat's utility?

Pay, Power, Prestige, and Perks.

What is the result of Niskanen's budget maximization model?

The bureau will attempt to reach the maximum possible budget where total costs equal total benefits, leading to an output ($Q$) larger than the efficient level.

According to Ronald Coase (1937), why do firms exist?

Firms exist to reduce transaction costs ($TC$) by using long-term contracts and authority instead of market negotiations for every activity.

How do Alchian and Demsetz (1972) explain the evolution of a 'firm'?

As a social unit that evolves when one team member takes title to output to monitor and reduce shirking (free riding).

Define 'Adverse Selection' in a principal-agent relationship.

An ex-ante problem arising from unobservable information where a principal does not know which agent is best to hire.

Define 'Moral Hazard' in a principal-agent relationship.

An ex-post problem where an agent changes their behavior to the detriment of the principal after a contract is signed because behavior is unobservable.

What is the 'Congressional Dominance' view from the Economics of Organization literature?

The view that Congress effectively controls bureaus as its agents through institutional designs.

What is an 'early warning system' mentioned by McCubbins, Noll, and Weingast (1989)?

Procedures requiring agencies to announce intentions in advance, allowing principals and third parties to respond to proposed actions.

What did Adam Smith publish in 1759 and 1776 respectivamente?

Theory of Moral Sentiments (1759) and Wealth of Nations (1776).

In neoclassical economics, what is the 'Diamond-water paradox' relevant to?

Diminishing marginal utility ($DMU$) and the difference between total utility and marginal utility.

What is the 'Normative-as-Positive' fallacy according to James Buchanan?

The mistake of assuming that how things 'should' work (normative) is how they 'actually' work (positive).

What was the core of the Buchanan and Tullock model in 'Calculus of Consent' (1962)?

An economic treatment of the social contract where individuals join a group to reduce costs and gain protection, operating under a veil of ignorance.

What are the two levels of decision-making distinguished in the 'Calculus of Consent'?

The operational level (daily decisions) and the constitutional level (the rules for making rules).

What does Kenneth Arrow's Impossibility Theorem prove?

That any voting system that is democratic will be prone to cycling (inconsistency) unless it is dictatorial.

What is 'vote cycling'?

A situation where no clear winner exists because preferences are transitive in groups (e.g., A beats B, B beats C, but C beats A) depending on the starting position.

What two conditions can help avoid vote cycling?

1) Agenda control (disallowing certain proposals) and 2) Single-peaked preferences.

State the Median Voter Theorem (MVT).

If preferences are single-peaked and the issue is single-dimensional, the median voter's preferences will always be favored in policy outcomes.

What is 'Director's Law' as proposed by Aaron Director?

Public expenditures tend to move toward and benefit the middle class.

Define the 'Condorcet Criterion'.

A voting method where each issue is compared one-on-one; the preference that defeats all others is the winner.

What is the 'Borda Count'?

A voting system where voters rank candidates and points are assigned based on rank (e.g., $m, m-1, … 1$); the highest total score wins.

What is 'Logrolling'?

The practice of trading votes between legislators to pass mutually beneficial projects.

According to the notes, when is logrolling inefficient?

When an intense minority can trade votes to pass projects that result in a net loss for the total group, often seen in 'bringing home the bacon.'

What is the difference between tax avoidance and tax evasion?

Tax avoidance is the legal reduction of taxes; tax evasion is illegal.

How does tax incidence differ from tax collection?

Tax collection is who pays the money to the government; incidence (burden) is who actually bear the welfare loss due to price changes.

What is the formula for the Magnitude of Welfare Costs ($W$) of a tax?

$W = \frac{1}{2} T \Delta Q$ where $T$ is the tax per unit and $\Delta Q$ is the change in quantity.

What does the Laffer Curve illustrate?

The relationship between tax rates and total tax revenue, suggesting that at very high rates, revenue may decrease as people work less.

Define the 'Law of Demand'.

As price decreases, quantity demanded per time period increases, assuming other factors are constant.

What characterizes a 'Nash Equilibrium' in game theory?

A scenario where each player is doing the best they can given the actions of the other players, and no player has an incentive to change their strategy.

What is the 'Prisoner's Dilemma'?

A classic game where self-interested players choose a strategy (confessing) that leads to a worse outcome for both than if they had cooperated.

What are the causes of 'Market Power' or Monopoly mentioned?

a) Barriers to entry, b) Single firm ownership of a resource, and c) Cartels.

What defines a 'Natural Monopoly'?

A firm that can produce the entire market's output at a lower average cost ($AC$) than could several firms, often due to high fixed costs.

What are the two key characteristics of a 'Public Good'?

Non-rival (one person's use doesn't diminish another's) and Non-excludable (impossible to prevent non-payers from consuming).

In market failure theory, what is an 'Externality'?

Spillover costs or benefits that arise incidentally from production or consumption and are not reflected in market prices.

What is a 'Pigouvian Tax'?

A tax on a good equal to the incidental (external) cost ($IC$) to achieve an efficient solution by making $MSC = MSB$.

What is the 'Difference Principle' in John Rawls' theory of justice?

Social and economic inequalities are permissible only if they benefit the least well-off members of society.

What objective does a 'Rawlsian' (Maximin) social welfare function seek?

To maximize the utility of the least well-off person in the community.

How does Robert Nozick define justice in 'Anarchy, State, and Utopia' (1974)?

Justice in holdings: if you acquired something legitimately or through a just transfer, you are entitled to it; taxation for redistribution is 'theft.'

What is the 'Kaldor-Hicks Criterion'?

A policy is an improvement if those who gain could, in principle, compensate those who lose, even if the compensation does not actually occur.

What is 'Pareto efficiency'?

An economic state where no one can be made better off without making someone else worse off.

According to Mancur Olson (1965), which type of group is more likely to succeed in providing a public good?

Small, homogeneous groups with strong incentives, because they can better overcome the free-rider problem.

What are 'Selective Incentives'?

Private benefits or punishments offered only to members of a group to induce them to contribute to a collective goal.

What is the Coase Theorem?

If transaction and bargaining costs are zero, private bargaining will lead to an efficient outcome regardless of the initial assignment of property rights.

Define 'Lindahl Prices' for public goods.

Tax shares where each individual pays according to their marginal valuation ($MV$) of the good, so that the sum of marginal benefits equals marginal cost ($\sum MB = MC$).

What is an 'impure' public good in Buchanan's theory of clubs?

A good that is excludable but subject to congestion at a certain membership size.

What is Charles Tiebout's 'vote with your feet' hypothesis?

Individuals reveal their preferences for local public goods by moving to the jurisdiction (club) that best matches their desired level of service and tax.

What are the 'Marginal Congestion Costs' ($MCC$) in club theory?

The cost added to existing members when an additional person joins the club, reducing the quality of the service.

According to US government statistics from 2019, which nation had the highest total government spending as a percent of GDP among those listed?

Sweden.

When reaching the efficient club size ($Qe$), what condition is met?

The marginal reduction in service costs ($MRSC$) equals the marginal congestion costs ($MCC$).

In the history of economic thought, which school is associated with Gary Becker and George Stigler?

The Chicago School.

What is the difference between horizontal and vertical equity in taxation?

Horizontal equity means people in the same circumstances pay the same; vertical equity means people in different circumstances pay different amounts.

As of the 2007 GAO guide projections, when is mandatory entitlement spending expected to exceed government revenues?

Sometime between 2030 and 2040.

Which US federal spending category has seen a massive increase as a percentage of GDP since 1950?

Total Entitlements (Social Security, Medicare, and Medicaid).