Bryan Caplan  

Two Public Choice Questions

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My undergraduate Public Choice students struggled with these questions on the final exam.  Can you do better?  Show off in the comments!

3. Local governments provide free public education to residents' children, regardless of the taxes they pay or family size.

T, F, and Explain: This is NOT what the Tiebout model predicts.


6.  Suppose voters were rational and the Self-Interested Voter Hypothesis were true.

 T, F, and Explain: Democracies would spend a higher share of their budgets on genuine public goods.



P.S. Citing past EconLog posts is perfectly acceptable.


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COMMENTS (18 to date)
Charley writes:

I don't know what the Tiebout model is so can't answer 3. 6, however, I believe is true. Public goods provide net utility and are therefore rational to obtain if all members of the group can reliably commit to each other that they will share the cost of the public good. A self-interested voter would choose to obtain the public good because the government can guarantee that all members of the society will shoulder their share of the cost through taxes. Of course, that same individual will then try to evade his/her tax burden and free-ride, but voting for the group as a whole to purchase the public good is in the individual's self interest.

How'd I do?

Jon Murphy writes:

3. Local governments provide free public education to residents' children, regardless of the taxes they pay or family size.

T, F, and Explain: This is NOT what the Tiebout model predicts.

Ok, so I did a crash course in the Tiebout model just now (read as "read Wikipedia entry") so I'll take a stab:

I would say this is what the Tiebout model predicts as it's a form of "tax competition." By providing more services (education) for the same price (no increase in tax for family size), the municipality can attract more residents from other municipalities.

Philo writes:

#6 is probably true, though this is not ironclad. Saying the voters are rational does not imply that they are well-informed, and their being self-interested means they will vote for what *seems to them*, within the limitations of their knowledge, to be in their own interest, not necessarily for what would *actually* be so. So there will still be room for special interests to obtain policies that favor them, though being contrary to the public interest, and thus to exploit the great mass of poorly informed voters. But, *ceteris paribus*, it seems that there will *less* room than there is in our actual circumstances.

Pajser writes:

3. T. Tiebout's model would predict segmentation. It doesn't happen because people are altruistic and want that all children go to school.

6. F. Democracy of selfish and rational people would purchase public good if and only if for majority, benefit is greater than cost. Dictator would purchase public good if and only if total benefits are greater than total costs. Because his interest is to keep people happy. Dictator is better (under assumption that people vote selfishly.)

Philo writes:

#3. I assume you mean that *all* local governments provide such education. Then the answer is: True (this is not what the Tiebout model predicts). The model, in itself, makes no prediction about whether communities will offer *any* education. If we simply assume that some education is to be offered (and make some other plausible, realistic empirical assumptions), the model predicts that some communities, formed mainly by people with no children, will offer *next to no* education (i.e., infinitesimally little education), while others, formed mainly by people with just one child, will finance education by charging *per child*.

Madeleine writes:

6. In this scenario, I'm going to go with "it depends." If the world is full of high-value public goods that are not otherwise provided due to lack of coordination, you'd expect the marginal voter to choose a party that provides them, knowing that if the election comes down to that voter, they got a good deal.

If such goods are not available, or available only at a very high cost, you'd expect voters to assemble a coalition of 50+ε% of the electorate and kick back the money as transfer payments.

Kumar Mayank Jha writes:

#3 is true. Tiebout model predicts that Local Government have better incentives for provision of Public Goods. If the Municipality provides Public Education regardless of the sizes of the family and the taxes paid. Families or Individuals with lesser number of Children and paying Higher Taxes will migrate to Municipalities which do not provide Free Public Education i.e people will weigh the benefits of Public Education vs the costs ( taxes). In such a situation, Municipalities won't provide Public Goods regardless of Family Size and Taxes.

Hence, this is not what the Tiebout Model Predicts.

#6 is false. The self interested Voter Hypothesis doesn't mean that Democracies will spend money on genuine Public Goods i.e special interest groups will still game the system because of concentrated benefits and distributed costs.
I think the Rational Ignorance Model is good over here i.e even though the voters are rational, the costs of educating themselves over issues exceed the benefits. Obviously, Information markets might inform people but because Democracy involves taking decisions over several matters all at once, I don't think Democracies will spend on genuine Public Goods.

If the costs of information acquisition are reduced to zero, probably #6 would be true.

cole writes:

Doing this like I did your tests, without looking at my notes.

3.
Neither true or false without the use of an additional model, or additional assumptions about the desirability of families with kids to localities. Flase if families with kids are more desirable. True if people without kids are more desirable.

The Tiebout model predicts that people will move to areas that benefit them more and move away from areas that penalize them. In the case of public education there would be a benefit to families with kids to move to the area, but a disincentive for people without kids to live in the area. If we knew that families with kids had more attractive qualities for an area than families without kids (like stable workers, stable taxpayers, less likely to commit crimes, etc). Then the tiebout model would predict that a locality might try to attract the better group of people (families with kids), at the expense of the worse group of people (people without kids).

Or, this is clearly true, because the tiebout model generally predicts that taxes and services provided will trend towards zero. But that depends entirely on your assumptions of just how mobile people are.

6.
True...the level of spending would at least be more optimal then it currently is (less in some cases more in others). Voting is a way of getting around the non-excludability problem that creates genuine public goods in the first place. It forces everyone to be involved in paying for the public good, or if the vote loses, no one is involved in paying for the public good. As long as the median voter benefits from a genuine public good they will be provided to rational self-interested voters. This would be an increase from current levels of spending where we currently underspend on public goods (like asteroid defense), but might also lead to a decrease from current spending levels in areas where we overspend on genuine public goods (like stopping the next Hitler).

_________

Comments:

Having taken your course these are my favorite kind of questions, but also the most challenging. Mostly because the questions feel like they are missing one or two key parts that make them clearly true or false, and also are not narrowly focused enough for a clear line of attack. I enjoyed them for the double puzzle of "what are the correct answers, and what knowledge is he really asking for", however I think this approach tended to award dogmatism over IQ, because knowing the right line of attack on the question requires knowing what you want more than it requires knowing the correct response.

Richard writes:
Suppose voters were rational and the Self-Interested Voter Hypothesis were true.

Aren't these two conditions contradictory? If voters are rational, then they do not vote at all. Therefore, they can't both be rational and vote their interests.

James writes:

3. False. The Tiebout model predicts that people will relocate to jurisdictions under governments that provide services like what they actually want and free schooling for all could well be what people actually want.

6. False. Voters would be in a prisoner's dilemma scenario with eachother. Each voter is better off voting for the government to provide private goods that they enjoy at the expense of others. Any private good enjoyed by enough voters to swing an election will be provided by the government.

More importantly, Every good known to the human race is rivalrous, excludable or both. Therefore, public goods do not exist. Therefore there is no scenario in which any government provides more or less or any number of public goods.

Brandon Berg writes:

Had to look up the Tiebout model, but based on the description, I would think that high-income and childless taxpayers would tend to flee such a community to avoid paying taxes for other people's children's educations. The equilibrium would be a model in which schools are funded with use fees.

Ed Hanson writes:

"3. Local governments provide free public education to residents' children, regardless of the taxes they pay or family size.

T, F, and Explain: This is NOT what the Tiebout model predicts."

False.

What has occurred is exactly what Tiebout predicted. It must be understood that "free" is not a absolute price but the cost of product. The choice is quality of the product. The explosion of suburban growth has been driven in part by the quality of the education product produced. Paying higher taxes to receive a better product is preferable to lower taxes for junk.

It must be remembered that that the opportunity to vote with your feet is not equal among people. But it is a process of those who can will, at the margin, do so. Thus families of both higher number of children and higher income have moved to the better product. Not part of this short response but there also has been growth of childless households to areas of lousy education, that is migration back to cities.

ThomasH writes:

What does 6 mean? Does it ask for a comparison between the state of rational voters who vote according to their self interest with a state in which voters were not rational and did not vote in their self interest? If so I don't think the question has a definite answer; there would be 3 alternatives -- no yes, yes no, and yes yes -- to compare with the postulated no no.

In addition, it would surely depend on exactly how voters were being irrational and in which non-self interested way they were voting. I'd guess that being marginally more rational would lead voters to want more collective goods but that being marginally more self interested in their voting would push them toward voting for fewer public goods.

Even this depends on how we think about voters' "self interest." Is the desire to live in a society with a more (or less) equal distribution of consumption (or prepared for that asteroid threat? or on track to minimize the harm from CO2 accumulation?) a "self interest" for a collective good or is it a "altruistic" desire to do good in part with other people's (non) consumption?

Swami writes:

I agree with Brandon. The Tiebout model would predict that households would sort by localities which optimized taxes for their family size. It would be more efficient in scale to offer education as a service with a fee. Thus the statement 3 is true, as this is indeed NOT what Tiebout predicts.

I agree with James on 6. The prediction would be an increase in goods with concentrated benefits and distributed costs. The rational and selfish action would be to vote for concentrated goods and ignore the inconsequential distributed costs. This would lead to self amplifying increases in non public goods. The statement is false.

It would however be rational for a political entity to offer up an omnibus bill which set up an impartial process to identify any and all concentrated benefits with distributed costs not meeting certain important qualifications and wholesale eliminating them. This omnibus bill would on average be rational for everyone to learn about and vote for. In other words, this problem is probably solvable -- in theory-- at a higher level of abstraction.

Jason Sorens writes:

You can defend either answer on #3. The easy answer is true, because the pure Tiebout model predicts that MB=MC of local public goods for every resident in every jurisdiction. Yet clearly, MC>MB of free public school spending for households with no or fewer kids. In a Tiebout world, they would move to towns without free schools, but in the real world they don't. OTOH, you can also defend "false." The real world differs from some of the Tiebout assumptions, while others still hold (roughly). States require local governments to make their schools free of charge and subsidize their school spending. But Tiebout mechanisms still work to some extent when local governments can use zoning to reduce housing supply elasticity and set a minimum quality of a housing unit. Then local govs with more school spending will have more expensive housing, and households that demand more schooling will have to pay more for housing. Given zoning, school spending also provides a benefit to households without kids by raising the value of their housing. So you'll still get Tiebout sorting across jurisdictions, with towns offering more (less) lavish schools having higher (lower) home prices and a higher (lower) proportion of the population consisting of school-age children.

JK Brown writes:

3. True.

Compulsory, public schooling is a very valuable political prize. By providing it cheaply to all children in the community, the ruling ideology can be induced in all the children of the community, thus separating them from their parental, national and cultural legacy.

The provision of public education is not just about improving the lot of the children, but also a valuable tool for the controlling elite to promote both ideology and, in the past, to produce the right kind of local workers.

Historically, this hasn't been a problem in most of the US with the schooling mostly designed to promote Western civilization, but with the increasing promotion of group separation and the diversity of local communities as well as abandonment of Western civ by most "educators", compulsory public education is a focal point of disagreement and violence. This was pointed out by Mises in his 'Liberalism' in relation to mixed nationality localities.

In all areas of mixed nationality, the school is a political prize of the highest importance. It cannot be deprived of its political character as long as it remains a public and compulsory institution. There is, in fact, only one solution: the state, the government, the laws must not in any way concern themselves with schooling or education. Public funds must not be used for such purposes. The rearing and instruction of youth must be left entirely to parents and to private associations and institutions.

It is better that a number of boys grow up without formal education than that they enjoy the benefit of schooling only to run the risk, once they have grown up, of being killed or maimed. A healthy illiterate is always better than a literate cripple.

But even if we eliminate the spiritual coercion exercised by compulsory education, we should still be far from having done everything that is necessary in order to remove all the sources of friction between the nationalities living in polyglot territories. The school is one means of oppressing nationalities— perhaps the most dangerous, in our opinion— but it certainly is not the only means. Every interference on the part of the government in economic life can become a means of persecuting the members of nationalities speaking a language different from that of the ruling group. For this reason, in the interest of preserving peace, the activity of the government must be limited to the sphere in which it is, in the strictest sense of the word, indispensable.

Mises, Ludwig von (2010-12-10). Liberalism (pp. 115-116). Ludwig von Mises Institute. Kindle Edition.

Martin writes:

3. False. The education is not free b/c it ignores opportunity cost of what would be provisioned through both non-profit and private modes. When local governments provide "free" education, residents are attracted to the "free" signal and migrate to the single monopolized model of public schooling but miss out on what could be (hence the opportunity cost).

6. False at the national level, democracies would likely increase amounts of transfer payments towards the median voter from both poor and rich; public interests/goods at this level are diffuse. True at the small-town level due to other methodologies interacting (shame, love, camaraderie, team, etc) to where selfishness in prioritizing public funds is mellowed (this assumes individuals will stretch the definition of public good).

Nathan Smith writes:

To (3):

FALSE. The Tiebout model predicts that local governments will supply an optimal amount of local public goods. But education meets the criteria for being a public good very, very tenuously at best. For the most part, it's a rival good: classroom seats and teachers' homework grading time are scarce. It's also excludable: denying non-payers access to a school is, technically, as easy as denying them access to a movie theater (and if that's illegal in some jurisdictions or for some types of schools, that's irrelevant to the underlying economics of public goods). The only way you can conclude that education is a public good (even partly) is by stressing the externalities of education, but the evidence for such externalities is weak, and in any case the externalities aren't usually local, since people move around a lot in their lives, and the kids in local schools today probably won't be local residents for most of their fifty years of adult life. Maybe someone could argue that keeping kids in school prevents them from being juvenile delinquents and engaging in crime. But generally, education is most realistically regarded as a private good that's provided by the government for redistributive or social contract reasons, not because it's a public good, so the Tiebout model doesn't predict that it will be provided by local government.

To (6):

FALSE: Self-interested voters would support a good deal of redistribution, being limited only by the disincentive effects of the taxes that finance it on the productivity of the rich. They would also support provision of genuine public goods, but there aren't a lot of genuine public goods, so I doubt they'd claim a larger share of the budget than they do now. What I'd expect to see more of is spending on the generation of useful ideas, with public prizes and innovation tournaments and whatnot doing much of the work currently done by the patent system. While there's truth in the "government's bad at picking winners" meme, the harms of patent gridlock are also large, and expanding the share of intellectual property that's in the public domain would probably give the median voter the best value per taxpayer dollar. But since ideas ARE an excludable good (patents and copyrights are feasible even if it would be nice to curtail them), they don't count as "genuine public goods," hence the statement is (in my opinion) false.

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