CPE FINAL EXAM TERMS
Tiebout Model - Answers -• A theory where you have a lot of local governments
providing the public goods and services
• The local governments best know their constituents and they can provide them with
the things they want
• By allowing the local governments to compete with each other, citizens will live under
the government that gives them what they want (since all individuals are different and
have personal evaluations) and the governments will provide good things for their
citizens because they don't want them to leave
• This is a nonpolitical solution to the free-rider problem in local governance
• Citizens shape the government
Curley Effect - Answers -• When a politician uses wealth reducing policies to drive out
those who do not support him
• This politician is tipping the balance of votes in his direction through implementing
policies that strangle economic growth
• Government shapes the citizens
• Example:
o "Let's say a mayor advocates and adopts policies that redistribute wealth from the
prosperous to the not so prosperous by bestowing generous tax-financed favors on
unions, the public sector in general, and select corporations. These beneficiaries
become economically dependent on their political patrons, so they give them their
undivided electoral support—e.g., votes, campaign contributions, and get-out-the-vote
drives. Meanwhile, the anti-rich rhetoric of these clever demagogues, combined with
higher taxes to fund the political favors, triggers a flight of tax refugees from the cities to
the suburbs. This reduces the number of political opponents on the city's voter
registration rolls, thereby consolidating an electoral majority for the anti-wealth party. It
also shrinks the tax base of the city, even as the city's budget swells."
Protective, Productive, and Predatory State - Answers -• We want protective and
productive with having a predatory state
• Protective: A protective government carries out the tasks assigned to it by the
established constitution and doesn't make any "choices"
• Productive: that agency through which individuals provide themselves with "public
goods" in post-constitutional contract
• Predatory: in this position, each person has some incentive to initiate conflict, to
engage in predatory activity
Constitutional Rules Impacted by play at Post Constitutional Level - Answers -• The
purpose of constitutional economics is to legitimize the existence of a constitutionally
circumscribed state and to discuss what type of constitutional rules could reasonably
reach unanimous consent at the state of constitutional choice. Rational contractors will
unanimously agree to less than unanimity rules, which reduce decision-making costs
with respect to routine collective decisions.
, • Post constitutional analysis involves the examination of strategies players adopt within
defined constitutional rules and principles. During the post constitutional stage players
treat the rules of the game as constraints and devise strategies to deal with them.
Concentrated Benefits Dispersed Costs - Answers -• Interpret narrowly and refuse to
provide special benefits unless clearly required by statute
• Voters are rationally ignorant of what politicians do. This leads to the phenomenon,
which favors recipients of government payments at the expense of the average
taxpayer. Like public choice theorists, Hayek understood the danger of interest groups
in the context of the logic of concentrated benefits and dispersed costs. While these
"innumerable interests . . . could show that particular measures would confer immediate
and obvious benefits on some, the harm they caused [on others] was much more
indirect and difficult to see"
Crony Capitalism - Answers -• An economic system characterized by close, mutually
advantageous relationships between business leaders and government officials
• Exhibited by favoritism in the distribution of legal permits, government grants, special
tax breaks, or other forms of state interventionism
• Influence the economy and society to the extent that it corrupts public-serving
economic and political ideals
Bootleggers and Baptists - Answers -• Derived from the observation that regulations are
supported both by groups that want the apparent purpose of the regulation, and by
groups that profit from undermining that purpose
• Bootleggers profit from prohibition, but Baptists are allied in the cause, though the
reason for policy isn't the reason for both
• Bootleggers and Baptists is a specific idea that attempts to predict which interest
groups will succeed in obtaining rules they favor. It holds that coalitions of opposing
interests that can agree on a common rule will be more successful than one-sided
groups
Slippery Slopes (and the Road to Serfdom) - Answers -• Hayek
• Warns of the danger tyranny that inevitably results from government control of
economic decisions-marking through central planning
• The abandonment of individualism and classical liberalism inevitably leads to a loss of
freedom, the creation of an oppressive society, the tyranny of a dictator, and the
serfdom of the individual
• Society has mistakenly tried to ensure continuing prosperity by centralized planning,
which inevitably leads to totalitarianism.
• Socialism, while presented as a means of assuring equality, does so through "restraint
and servitude", while "democracy seeks equality in liberty"
• Planning, because it is coercive, is an inferior method of regulation, while the
competition of a free market is superior "because it is the only method by which our
activities can be adjusted to each other without coercive or arbitrary intervention of
authority"
Tiebout Model - Answers -• A theory where you have a lot of local governments
providing the public goods and services
• The local governments best know their constituents and they can provide them with
the things they want
• By allowing the local governments to compete with each other, citizens will live under
the government that gives them what they want (since all individuals are different and
have personal evaluations) and the governments will provide good things for their
citizens because they don't want them to leave
• This is a nonpolitical solution to the free-rider problem in local governance
• Citizens shape the government
Curley Effect - Answers -• When a politician uses wealth reducing policies to drive out
those who do not support him
• This politician is tipping the balance of votes in his direction through implementing
policies that strangle economic growth
• Government shapes the citizens
• Example:
o "Let's say a mayor advocates and adopts policies that redistribute wealth from the
prosperous to the not so prosperous by bestowing generous tax-financed favors on
unions, the public sector in general, and select corporations. These beneficiaries
become economically dependent on their political patrons, so they give them their
undivided electoral support—e.g., votes, campaign contributions, and get-out-the-vote
drives. Meanwhile, the anti-rich rhetoric of these clever demagogues, combined with
higher taxes to fund the political favors, triggers a flight of tax refugees from the cities to
the suburbs. This reduces the number of political opponents on the city's voter
registration rolls, thereby consolidating an electoral majority for the anti-wealth party. It
also shrinks the tax base of the city, even as the city's budget swells."
Protective, Productive, and Predatory State - Answers -• We want protective and
productive with having a predatory state
• Protective: A protective government carries out the tasks assigned to it by the
established constitution and doesn't make any "choices"
• Productive: that agency through which individuals provide themselves with "public
goods" in post-constitutional contract
• Predatory: in this position, each person has some incentive to initiate conflict, to
engage in predatory activity
Constitutional Rules Impacted by play at Post Constitutional Level - Answers -• The
purpose of constitutional economics is to legitimize the existence of a constitutionally
circumscribed state and to discuss what type of constitutional rules could reasonably
reach unanimous consent at the state of constitutional choice. Rational contractors will
unanimously agree to less than unanimity rules, which reduce decision-making costs
with respect to routine collective decisions.
, • Post constitutional analysis involves the examination of strategies players adopt within
defined constitutional rules and principles. During the post constitutional stage players
treat the rules of the game as constraints and devise strategies to deal with them.
Concentrated Benefits Dispersed Costs - Answers -• Interpret narrowly and refuse to
provide special benefits unless clearly required by statute
• Voters are rationally ignorant of what politicians do. This leads to the phenomenon,
which favors recipients of government payments at the expense of the average
taxpayer. Like public choice theorists, Hayek understood the danger of interest groups
in the context of the logic of concentrated benefits and dispersed costs. While these
"innumerable interests . . . could show that particular measures would confer immediate
and obvious benefits on some, the harm they caused [on others] was much more
indirect and difficult to see"
Crony Capitalism - Answers -• An economic system characterized by close, mutually
advantageous relationships between business leaders and government officials
• Exhibited by favoritism in the distribution of legal permits, government grants, special
tax breaks, or other forms of state interventionism
• Influence the economy and society to the extent that it corrupts public-serving
economic and political ideals
Bootleggers and Baptists - Answers -• Derived from the observation that regulations are
supported both by groups that want the apparent purpose of the regulation, and by
groups that profit from undermining that purpose
• Bootleggers profit from prohibition, but Baptists are allied in the cause, though the
reason for policy isn't the reason for both
• Bootleggers and Baptists is a specific idea that attempts to predict which interest
groups will succeed in obtaining rules they favor. It holds that coalitions of opposing
interests that can agree on a common rule will be more successful than one-sided
groups
Slippery Slopes (and the Road to Serfdom) - Answers -• Hayek
• Warns of the danger tyranny that inevitably results from government control of
economic decisions-marking through central planning
• The abandonment of individualism and classical liberalism inevitably leads to a loss of
freedom, the creation of an oppressive society, the tyranny of a dictator, and the
serfdom of the individual
• Society has mistakenly tried to ensure continuing prosperity by centralized planning,
which inevitably leads to totalitarianism.
• Socialism, while presented as a means of assuring equality, does so through "restraint
and servitude", while "democracy seeks equality in liberty"
• Planning, because it is coercive, is an inferior method of regulation, while the
competition of a free market is superior "because it is the only method by which our
activities can be adjusted to each other without coercive or arbitrary intervention of
authority"
