Public Choice and Rent Seeking

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14 Public Choice and Government Failure

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Learning Outcomes

After reading this chapter, you should be able to

• Examine the implications of self-interested behavior in the public sector (public choice) as a cause of gov- ernment failure.

• Describe the concept of rent seeking.

• Explain why government grows in terms of logrolling and bureaucratic incentives and why regulation cre- ates a bias against new products and new technology.

• Explain some of the methods of privatization.

298

Section 14.1 Public Choice

Introduction Imagine for a moment that you are the chief administrator of a small public transport system that has just received approval from its board of directors for a significant enlargement of its mission. The difficulty you face is that growth requires significant physical expansion: You need to build buildings. In order to build these buildings, you have to sell bonds to finance the construction. And in order to sell these bonds, the citizens in your area must vote to tax them- selves in order to fund the expansion. You are well aware that tax increases can be challenging to pass, for obvious reasons. Is there anything you can do, besides the normal advertising and explaining of how important this expansion will be, that will increase your chance of success?

In 2017 the California State Senate voted to send a $4.45 billion transportation plan to voters for their approval. The catch? The plan would be funded by increasing bridge tolls throughout the state, some by as much as $3 per trip. A trip from the East Bay into San Francisco would now be as high as $9 for a single crossing. Why would California residents ever vote in favor of this proposal?

This chapter will examine possible strategies and the effect of economic incentives on govern- mental policy decisions.

14.1 Public Choice Public choice theory is a relatively new area of study in economics. A useful definition appeared in the 1993 annual report of the Center for the Study of Public Choice at George Mason University:

Choice is the act of selecting from alternatives. Public refers to people. But people do not choose. Choices are made by individuals, and these may be pri- vate or public. A person makes private choices as he goes about his ordinary business of living. He makes public choices when he selects among the alter- natives for others as well as for himself. (p. 28)

Public choice theory is not as optimistic as traditional welfare economics about the potential for government intervention to improve market outcomes. The weaknesses of the political process mean that government intervention does not work in the ideal way suggested by welfare economists. Public choice analysis thus begins with the assumption that people who act in a self-interested way when making personal economic decisions are the same people who vote, run for office, or are employed in the bureaucracy. For example, public choice econ- omists expect the voter to be ill informed because the cost of informed voting is extremely high. They view the politician as a vote maximizer, putting coalitions together to attract a majority of voters. Bureaucrats are not profit maximizers but seek instead to maximize bud- gets and/or to ensure the stability of their jobs. According to the public choice economist, the result of such self-interested behavior in the public sector is that government is an imperfect intervener in its attempt to correct for market failures. One of the most important insights

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Section 14.2 Rent Seeking

that emerges from public choice theory is that small groups with strong interests will often get their way politically because it is irrational (unprofitable) for the majority to oppose them.

When considering what it will take to convince a majority of voters to approve a particular proposal, it is helpful to identify the primary biases that vot- ers tend to exhibit in the process. Understanding voter behavior provides some insight into why there could be less-than-optimal intervention in the mar- ket. For example, proposals with long-delayed ben- efits are likely to be adopted only if their costs are unknown or can be deferred or concealed, whereas proposals offering readily apparent short-term ben- efits and deferred costs stand a good chance of win- ning voter approval. Proposals to abolish programs

or reduce public spending have a low probability of adoption. Electoral rewards go to politi- cians who propose new programs or expansions and extensions of existing programs. Finally, packages of reform proposals stand a better chance of adoption than individual reform pro- posals, even if none of the packages’ components would be accepted by a majority of voters if considered separately (Mitchell, 1978).

Policy problems exist because two imperfect mechanisms are at work. The market fails because of externalities, underproduction of public goods, and business cycles. The collective political process fails because the participants are responding to individual incentives. Policy makers must, therefore, choose between two imperfect mechanisms in attempting to solve any policy problem. The policy maker and voter must examine the biases inherent in both the market solution and the collective political solution. It will not always be clear that the cost of intervention is less than the cost of inactivity. Therefore, the public choice approach may lead to a prescription of no intervention in many cases, on the grounds that the cure in this case could be worse than the disease.

14.2 Rent Seeking Economic rent is the economic return over opportunity cost. Rent seeking is the commit- ment of scarce resources to capture returns created artificially. For example, imagine that Iowa farmers want to receive higher prices for their corn. A political candidate could cam- paign to expand the use of corn-based ethanol energy. Ethanol is not an efficient producer of energy, but expanding its use would push out the demand for corn and increase prices (and short-run profits) for Iowa farmers. Thus, Iowa farmers would be rent seeking against the rest of the public by using political power to get an economic benefit, to the detriment of other, more beneficial, resource use. This rent seeking is a real cost to society because com- petition for governmentally created rents, unlike the “real” rents discussed earlier, does not generate increased supply.

Hill Street Studios/Blend Images/Superstock Public choice analysis begins with the assumption that people who act in a self-interested way when making per- sonal economic decisions are the same people who vote, run for office, or are employed in the bureaucracy.

300

Section 14.2 Rent Seeking

The Cost of Rent Seeking Gordon Tullock (1967), in attempting to measure the costs of rent seeking, was the first to develop the concept. As you learned in Chapter 10, the deadweight loss of monopoly results from the firm producing a less-than-efficient quantity of output. However, Tullock argued that many of the economic rents, or profits earned by the firm, are also wasted in the process. The cost of rent seeking, or the spending to capture these profits, turns them into a social cost of monopoly. In fact, if competition for the monopoly were vigorous, the monopolist profits could be exactly equal to the resources wasted in competition for the monopoly privilege. The “cost of capture” is unproductive in the sense that it uses scarce resources but does not gener- ate any economic activity that lowers price or increases output.

Legislation and Rent Seeking Tullock’s concept of rent seeking helps explain government action as a form of self-interested behavior by politicians and voters. Many actions of people in government can be explained by this analysis. In fact, it might be argued that an industry of rent seekers exists in most state capitals, and most certainly in Washington, D.C.

There are at least two broad applications of this rent-seeking theory to government actions. The first explains the types of government regulation. George Stigler (1971) described the benefits and costs to various interest groups of using the government as a vehicle to increase their own wealth. Some groups, such as agricultural interests, seek income transfers from the state. Other groups, such as Airbnb, use politics to fend off regulation that would regularly apply to all lodging accommodations but would have a negative impact on Airbnb’s costs and profit. In some cases, management and labor join together to use the state for their mutual benefit at a cost to consumers, such as in attempts to restrict imports like steel.

The second application focuses on the economic behavior of legislatures. In this analysis, the politician is responsible for brokering transfers from one group to another. One can view the politician as an entrepreneur putting together coalitions of rent-seeking groups. Consider the public provision of education as an example. In the United States education through the 12th grade is mainly produced in the public sector. A public choice economist would argue that even if education is a public good, there is no reason to believe that representative democracy can create the incentives necessary to internalize the external benefits of edu- cation. Instead, officeholders broker benefits to certain subsets of the population, includ- ing members of the educational administration and organized student or parent groups. So what started as a correction of market failure may end up in a solution that is quite far removed from the optimal correction.

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Section 14.3 Analysis of the Political Market

14.3 Analysis of the Political Market According to the self-interest theory of government, the size of government increases due to rent-seeking activity and brokering activity by politicians. There are also other forces at work to influence the type of governmental programs that are created by politicians. Most of these forces tend to increase the size of government.

The Median Voter Theorem The median voter theorem predicts that under majority rule, politicians will adopt the posi- tions of voters near the center of the political spectrum. To see why, refer to Figure 14.1. Assume that political preferences in society are continuous from left to right and distributed under the normal curve in the figure. If there are two candidates, R and L, who are at equal distances from the center, they will get the number of votes represented by the area under the curve on their side of the median line. They tie at the polls. Candidate R will realize that he can steal some votes by moving toward the median, because he can count on all the voters to his right. Candidate L will realize what is happening, and she will also move toward the center in an attempt to get a majority of the votes cast. As a result, both politicians will end up near the median political position, where there are the same number of voters to the left and the right.

Figure 14.1: The median voter model

If two politicians are running against one another, they will both move toward the median position to capture votes.

Number of voters

Median political position

Left Right

L R

The median voter theorem can be used to explain why public spending is aimed at groups in the middle of the political stream, especially in a two-party system. Why, for example, do politicians promote programs to spend more money on education in general than they do for education for poor children?

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Section 14.3 Analysis of the Political Market

Logrolling When many issues are before a legislative body at the same time, the outcome most pre- ferred by voters on some issues may not result. This failure is due to politicians trading favors, sometimes referred to as “logrolling.” Logrolling is a form of exchange in which politicians trade support on one issue for support on another issue. If a legislator logrolls, he or she trades votes on one bill or act in order to secure votes for another bill or act. It is the direct exchange of support. The senator from Oklahoma votes for the military base in South Carolina in exchange for a vote by the senator from South Carolina for the water project that will make Tulsa a seaport.

The combination of geographically based representative democracy and logrolling promotes overspending. This excess spending results because citizens see the cost of their local proj- ects being shifted to citizens of other states or districts and reward their elected officials for delivering such projects. Since most representatives attempt to be successful at this political game, logrolling creates larger-than-desired levels of government spending.

Policy Focus: Why Are Voter Turnouts So Low?

When election time rolls around, voters are bombarded with commercials and e-mails concerning their civic responsibility to vote. These statements are often accompanied by complaints about low voter turnouts for U.S. elections. You may even be told by your local newspaper’s editorial writer that “if you don’t vote, you can’t complain.”

But think about it rationally for a minute. What are the costs of voting? You must register to vote. You must spend time getting to the polls or filling out and mailing an absentee ballot. Most importantly, you must spend time becoming informed on the issues and the candidates. What are the benefits of voting? It is possible that you might be able to affect the outcome, but the probability of your vote being important is tiny, especially in national elections. Perhaps you vote because you get a feeling that you have done your duty, or you receive satisfaction from participating in civic affairs. These feelings must be important, or even fewer people would vote. This is a consumption motivation for voting.

If we really wanted more people to vote, we would need to make it less costly to vote. In Europe most countries vote on Sundays. Some states make election day a legal holiday to encourage voting. It’s not clear whether this increases or decreases the cost of voting! If you don’t think costs affect turnout, answer this question: Do more people vote when the weather is nice or when it is bad?

How could the cost of voting be lowered or the benefits increased? Some methods are postcard registration, transportation to the polls, and more voting places so that lines are shorter. In 2003 Texas introduced what it calls “no excuse voting.” All Texas counties are required to begin early voting 17 days before an election. Texans can stop in anytime during this time and cast their vote. Early voting is certainly more convenient, which should greatly reduce the cost of voting. There was a slight increase in voter turnout in 2004, but the overall trend since early voting in Texas began has revealed no dramatic increase in voter turnout. More convenient does not necessarily translate into more voters (Progressive States Network, n.d.).

(continued)

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Section 14.3 Analysis of the Political Market

Policy Focus: Why Are Voter Turnouts So Low? (continued)

Regardless of the effectiveness of early voting, more states have adopted the practice in recent years. Many states have also implemented other changes to the voting process to make it easier and more convenient for voters to participate. For example, many states have expanded absentee voting to all voters who request to vote via absentee ballot. Other states have shifted to all-mail voting, where a ballot is automatically mailed to every eligible voter without a special request or application. Figure 14.2 shows which states fell into which category as of 2017.

In spite of increased efforts by some states, voter turnout rates are still very low in the United States. Although more voters turned out for the November 2016 election than for the November 2012 election, only about 139 million Americans participated. That’s just 60.2% of the voting-eligible population. Researchers from the group Nonprofit Vote found that voter participation was most common in so-called battleground states or in states that allowed voters to register and cast ballots on the same day (Wilson, 2017). Voter turnout thus appears to be correlated with (a) the likelihood that a vote would be more pivotal, as in battleground states, or (b) the voting process being unrestricted, as in the case with same- day registration. Many economists would have predicted this using public choice theory.

Figure 14.2: Early voting options in each state

From “Absentee and early voting,” by National Conference of State Legislatures, 2017, Retrieved from http://www.ncsl.org /research/elections-and-campaigns/absentee-and-early-voting.aspx. © National Conference of State Legislatures.

MDDE

MT ND

MS AL

WI MI

MO KY

NMAZ

OK AR

NY OR

CO KS

AS GU MP PR VI

Early voting Early voting and no- excuse absentee

voting

All-mail voting No early voting: excuse require for

absentee

http://www.ncsl.org/research/elections-and-campaigns/absentee-and-early-voting.aspx

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Section 14.3 Analysis of the Political Market

Bureaucrats and Bureaus Once a governmental unit has decided how much of a public good to produce and how to pay for it, the legislature and the executive branch (president, governor, mayor) usually turn the job of supplying the good over to a bureau—a government agency or department. In a few cases, governmental units simply purchase privately supplied goods with tax revenue. A clas- sic case of using private suppliers exists in Scottsdale, Arizona, where part of the fire protec- tion is privately supplied and part is provided by the local government. Garbage removal is privately supplied in many communities. Often, however, a bureau is responsible for produc- tion of a good in the public sector.

The role of bureaus and bureaucracy creates many problems in supplying public goods. It is extremely difficult, if not impossible, to monitor the efficiency of a bureau. Bureaus do not usually produce measurable outputs. Instead, they produce services. For example, a bureau might produce fire protection, education, or defense. When legislatures monitor these activi- ties, they tend to examine spending rather than measure outputs. Citizens, however, are more interested in output levels and quality of service. Sometimes there is a partial measure of output, such as the number of students educated or length of response time for firefighting units. But how can the value of the output of the U.S. Department of Defense be measured? The value of output must usually be inferred from the activity of the bureau, and that activity is most often measured by the level of expenditure. Thus, complaints about the quality and quantity of education or defense are generally reduced to calls for increased spending on the activity itself.

Monopoly Problems The problem of monitoring bureaus is further complicated by the fact that bureaus are almost always monopoly suppliers dealing with a single purchaser, the government. This relation- ship makes the monitoring function of the government committee charged with oversight of the bureau difficult at best. The rationale for a monopoly supplier is that it avoids inefficient duplication. This reasoning may or may not be valid. However, the monitoring committee has no competing information by which to judge the bureau’s efficiency.

This point has become a hot topic in debates concerning the public funding of education. Some leading policy critics suggest a voucher system as a way to introduce competition into public education. Under a voucher system, each student receives a “ticket” that can be used for tuition at any school. The hope is that the resulting competition will improve the quality and quantity of publicly financed education. Teachers as a group are opposed to the voucher system concept. A voucher system in primary and secondary education would be a lot like state support of higher education. The state “pays” public colleges and universities based on their enrollment, and the state colleges and universities compete with each other (and with private colleges) for students. It isn’t a perfect analogy, but a fairly close one.

Budget Maximizing Still another problem in monitoring bureaus is created by the way in which bureaucrats are rewarded. As we discussed in a previous chapter, entrepreneurs or hired managers in the private sector generally lay claim to any profit and therefore have ample incentive to increase efficiency. In a public bureau, the manager has no such stake. In fact, it may even be that

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Section 14.4 Privatization

the bureau manager’s salary is inversely related to efficiency. This perverse situation can result when salary increases are tied to the size of the budget and the budget grows (in part) because of inefficiency.

There are many possible goals that bureaucrats substitute for the private manager’s goal of profit maximization. Among these other motivations are salary, perquisites of the office, power, public reputation, patronage, bureau output, ease of management, or investment in future private sector employment. Government officials need to keep these competing moti- vations in mind when they establish bureaus and when they evaluate bureau managers’ behavior. There is an internal contradiction in expecting a government official to try to con- trol the size of a bureau.

What Is the Answer? These problems of government intervention lead to disturbing conclusions. You saw in pre- vious chapters, especially the one on monopoly, that markets do not always produce ideal results. The chapter on market failure and government intervention added externalities and public goods to the list of market failures. But this chapter has shown that political action designed to correct market failure introduces a whole new set of problems. The net result is a messy one. Markets may fail, but governments also can fail. Government and government representatives do not always work in the public interest.

In fact, the conclusion of public choice theory is that there is no such thing as “the public inter- est.” It is instead correct to say “the self-interest of groups working in the public sector.”

This view of government failure as a parallel to market failure has been widely accepted among policy makers and voters. The important point is that economists can attempt to iden- tify market failure and government failure and allow policy makers to sort out the least harm- ful solution to policy problems that affect everyone.

14.4 Privatization One policy movement, often referred to as privatization, has worked against the tendency of governments to grow. Privatization is the transfer of governmental activities and/or assets to the private sector. In many industrialized countries, including France and the United King- dom, and also in Latin America, privatization has been the norm for about 30 years. It involves not only sale of state enterprises to the private sector but also contracting out certain kinds of public services paid for with taxes to private firms (such as management of prisons and hospitals). U.S. cities and localities have used five methods to privatize services: contracting, franchising, vouchers, subsidies, and tax incentives.

The advantages of privatization are that it reduces government spending and is politically feasible because it does not eliminate the service. Privatization may

1. introduce competition and the resulting efficiencies, 2. enable smaller localities to join together into more efficiently sized units for pur-

chasing services,

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Section 14.4 Privatization

3. remove government from labor negotiations and retirement commitments, and 4. transfer revenue-consuming activities to private firms that pay taxes and produce

revenues.

Privatization can also result inadvertently from failure of governments to deliver a quality service. The United Parcel Service’s or FedEx’s success in competing with the U.S. Postal Ser- vice in delivering packages and overnight mail is perhaps the best example of such a govern- mental default. Privatization will continue to be an important policy topic for state and local governments as the United States attempts to reduce its debt.

Check Point: Methods of Privatization

Method Operation Example

Contracting Government bids out activity Taxis and private prisons

Franchising Government grants franchise Garbage pickup

Vouchers Government gives “tickets” and public buys Education

Subsidies Government gives grants Cultural activities

Tax incentives Government grants tax credits Child care

Economics in Action: Private Prisons: How U.S. Corporations Make Money out of Locking You Up

The United States is home to 5% of the world’s population but a quarter of the world’s prisoners. It also has the highest rate of youth imprisonment, and on any given day there are more than 70,000 youths in detention. And who are the biggest winners of this mass incarceration? The for-profit prison companies, whose business models essentially depend on locking more and more people up. Get the full story here: https://youtu.be/hQxtRcfBIXY.

Global Outlook: Privatization in Africa

The story of privatization in Africa is an interesting one, primarily because of its ability to reduce the great financial burden on the government while also potentially stimulating private economic growth. Until 1996 privatization in Africa had been slow. By 1997 the number of transactions had increased to roughly 2,900, with a cumulative total sale value of around $6 billion (White & Bhatia, 1998). In contrast, privatization revenues in Italy alone generated $112 billion from 1990 to 2001 (Mahboobi, 2002).

In 2005 John Nellis of the Center for Global Development examined the process and progress of African governments in a movement toward privatization and found that African states had privatized a far smaller percentage of their state-owned and operated

(continued)

https://youtu.be/hQxtRcfBIXY

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Section 14.4 Privatization

infrastructure companies than in Latin America or several transition economies. Also, of the privatization that had taken place, it was in smaller and less valuable industries like low- end manufacturing, while infrastructure privatization remained stagnant (Nellis, 2005). Table 14.1, reproduced from Nellis’s study, shows the government’s share of ownership before and after privatization over 10 years.

(continued)

Table 14.1: Government’s share of equity before and after privatization

Sector Average government’s share of equity Percentage

Manufacturing and industry Before privatization 79.7

After privatization 7.9

Agriculture, agroindustry, and fisheries

Before privatization 79.5

After privatization 1.6

Services, tourism, and real estate

Before privatization 70.2

After privatization 14.3

Trade Before privatization 95.3

After privatization 3.3

Transport Before privatization 97.6

After privatization 4.9

Financial Before privatization 86.7

After privatization 8.2

Energy Before privatization 88.3

After privatization 46.5

Water Before privatization 100

After privatization 12.5

Electricity Before privatization 100

After privatization 33

Telecoms Before privatization 95.8

After privatization 42.8

Other Before privatization 63.3

After privatization 10.2

Total average government’s share of equity before privatization 89.1

Total average government’s share of equity after privatization 10.3

“Table 4: Government’s share of equity before and after privatization,” from “Privatization in Africa: What has happened? What is to be done?,” by J. Nellis for Center for Global Development, 2003, Retrieved from https://www .cgdev.org/sites/default/files/2765_file_cgd_wp025.pdf. Licensed under CC-BY-NC 4.0.

Global Outlook: Privatization in Africa (continued)

https://www.cgdev.org/sites/default/files/2765_file_cgd_wp025.pdf

https://creativecommons.org/licenses/by-nc/4.0/

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Conclusion

Conclusion Return to the public bond issue that you are in charge of getting passed. Is there anything you might do to help your own cause? Considering the California Bay Area transportation plan, many people would vote in favor of the toll increase because of the expected benefits: $500 million to help pay for an expanded fleet of new-generation rail cars, expanding rail transportation to San Jose, and a whopping $1.1 billion for rebuilding interchanges and improving the most heavily traveled highway corridors. Many residents would be willing to pay a little more every time they cross a bridge in order to reduce traffic congestion and improve rail service. However, the cost of the plan will fall predominantly on a specific set of individuals: people who cross a bridge as part of their daily commute to work, which are primarily residents of the East Bay (Alameda and Contra Costa Counties). With citizens from nine Bay Area counties voting on a proposal where the benefits are widespread but the costs fall primarily on the residents of only two counties, the measure is likely to pass (California Legislative Information, n.d.).

Another example is the case of Tarrant County Junior College (TCJC) in in Tarrant County, Texas, which wanted to build an additional campus. It received approval from its govern- ing board and then had to go to the voters in a bond election to have them approve a tax increase to pay for the campus. Tax increases are not easy to pass! There are a few people who will gain from the tax increase. Students who will attend certainly will gain. But most potential students aren’t even of voting age yet. Faculty and staff will gain. Most of them haven’t been hired yet. Certainly, there are enlightened businesspeople and citizens who favor education and will come to the polls and support the bond issue. There are, however, a lot of people who will lose through higher taxes. They will lose only a little because it is a very small tax increase and is spread over a very large county.

Global Outlook: Privatization in Africa (continued)

One reason for the lag may be because privatization has not gone smoothly in many regions. For example, in Zambia, the process of privatization was once referred to as a successful program by the World Bank. However, public perception became increasingly negative as allegations of mismanagement and corruption erupted. Resentment has resulted over the closure of firms previously run by Zambians.

What should be done? African states would need to make sure that their procedures and methods of privatization are efficient and free of political interference and that contracts are enforceable. Otherwise, states will be unable to attract and retain the investment necessary for successful privatization.

One other method may be to envision new types of partnerships between public and private enterprises. In 2018 the new South African president, Cyril Ramaphosa, spoke to the country’s 700 state-owned enterprises (SOEs), saying, “We will need to confront the reality that the challenges at some of our SOEs are structural. SOEs cannot borrow their way out of their financial difficulties” (as cited in Crabtree, 2018, para. 5). Whether this means privatization or equity partnerships, genuine reform may still take some time as the government works to regain the trust of voters that moving toward greater privatization will benefit them.

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Conclusion

Therein lies a strategy. Pick a time for the election when the bond issue is the only item on the ballot. That is exactly what the administration of TCJC did. They could have picked a special election held in Texas to pick a new U.S. senator. They could have picked a time when there were city and county elections all over Tarrant County. But they didn’t; they picked a Saturday in July when the bond issue was the only thing on the ballot. Those people who had a direct interest in the expansion of TCJC turned out and voted for the bond issue. The larger group of voters who would have had an interest in the U.S. Senate election and/or had an interest in the city elections did not go to the polls. They were uninterested or maybe didn’t even know there was a special bond election.

So you see, voter turnout is a double-edged sword. It depends on whose side you are on. Sometimes policy makers might be just as happy if some voters stayed home!

Key Ideas

1. Public choice theory identifies biases in the political process and applies economic analysis to political processes and outcomes.

2. Rent seeking is the economic description of individuals’ use of the political process to generate income transfers to themselves or to groups they support.

3. The median voter theorem suggests that, under majority rule, politicians will adopt positions near the middle of the political spectrum. Logrolling in a legislature increases the size of budgets. Legislators agree to vote for a colleague’s project in return for a vote on their project. Bureaucratic decision making is different from firm decision making because bureau managers face a different set of incentives than private sector managers do. All of this type of behavior tends to increase the size of government. Government regulation introduces a bias against new products and new technology.

4. Privatization of government assets or activities permits provision of goods and ser- vices to be done more efficiently by relying on market (and other) forces.

Critical-Thinking Questions

1. Why do bureaucracies not always serve the public interest? 2. What is public choice theory? 3. Why is it so hard to cut programs once they have started? 4. What is the median voter theorem? 5. According to public choice theory, why is it not rational to vote? 6. How do radical economists challenge the marginal productivity theory of income

distribution? 7. How can logrolling increase the size of government? 8. When could a bureau manager’s salary be inversely related to efficiency? What prob-

lems could this cause? 9. Is it possible for interest groups in Washington to engage in logrolling? How would

they do it? 10. What are a few ways the government could improve voter turnout? Why might this

be a bad idea?

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Conclusion

11. Should the government intervene in every case in which an externality exists? In what situations might it be better not to intervene?

12. Why do government programs that concentrate benefits and diffuse costs have a bet- ter chance of being enacted than those that benefit many and impose costs on a few?

13. Give a few examples of current government entities that could possibly be privatized. What potential goals would privatization accomplish?

Key Terms logrolling Vote trading in the legislative process.

median voter theorem A theory that pre- dicts that, under majority rule, politicians will reflect the positions of voters near the center of the political spectrum.

privatization The transfer of governmental activities and/or assets to the private sector.

rent seeking The commitment of scarce resources to capture returns created artificially.