Public Economics: Week 3

Definitions to know:

 Lindahl pricing
 Arrow’s Impossibility Theorem
 Median Voter Theorem
 Public Choice School
 Free-rider problem
 Public Good
 Common Good

Short answer questions:

Under what conditions will majority voting lead to inconsistent preference aggregation?

According to the median voter theorem, if preferences are single-peaked, majority voting will
produce outcomes that are preferred by the median voter. Are there certain circumstances where
the assumptions of the median voter theorem hold, but when voters at the tails of the distribution
would be decisive? Explain.

With the introduction of devolved national assemblies in UK nations (Scotland, Northern

Ireland, and Wales) in 1998, the UK’s central (Westminster) government introduced a single
transferable vote (a proportional electoral rule which increases the number of parties in a
legislature) for elections in Northern Ireland’s National Assembly, rather than a first-past-the-
post voting rule that favors the median voter, which is commonly used for UK national elections.
What may have motivated Westminster to do this (hint: Downs and a basic understanding of the
composition of Northern Ireland’s population on religious lines will help you here)?

What is the difference between privatization and contracting out? When may it be more
advantageous for government to use the latter rather than the former?

According to privatization theory, the state is ineffective and subject to corruption, and hence the
production of goods and services should be trusted to the market. Under what conditions,
however, may privatization be problematic (give one example)?

Why do missing markets exist for public goods? Depict the lack of equilibrium for public goods
graphically, and outline under what conditions would a lack of equilibrium occur.

What is the “tragedy of the commons”? How can problems associated with common goods
consumption be rectified?