Rise and Decline of Nations, by Mancur Olson’s 2 small question assignments

1. After reading chapters one and two,  Rational Ignorance is when the cost of gathering information is higher relative to the benefit of that information.  Why would a voter bother to become informed about voting if his vote has a small chance of being decisive?  it opens the door to government failure and for interest groups and politicians to take over and be dominant.

2. Olsen believed that the US has a graduated income tax but allow numerous loopholes so that wealthy taxpayers often pay little tax because of because of inconsistencies in modern democracies.  Also a lack of understanding of the collective good.  The existence and power of lobbyists due to uninformed citizens.  Bargaining among organized groups will not achieve a rational or efficient economy, certain people and smaller groups will be left out.

3. Smaller countries will be more likely to be more successful at collective action and have better coordinated labor movements than large countries because large groups will not act in their group interest.  Smaller groups are able to organize easily and will provide collective goods and services for their members.  They will have a greater likelihood of engaging in collective action than the larger ones.

1) Olson explains that "rational ignorance" is the result of a situation in which the gain of an individual by putting some level of effort into accomplishing a task, is relatively small compare to such effort. Due to the fact that the individual would gain a minimal benefit from it, it would not provide a sufficient incentive to accomplish the task, resulting in "rational ignorance" by not taking action.

2) according to Olson the laws and regulation of income tax, are far less known by tax payers. However, the smaller group of tax payers that can gain great benefit by knowing such regulations have a selective incentive and understand the advantage of knowing the system. They are not rational ignorants.

3) Olson explains that when a group benefiting from collective action is small enough, the benefit ratio of collective action is favorable enough. The greater the country, the less favorable the ratio of collective action will be.

1. Rational ignorance generally defined occurs when the cost of acquiring information is greater that the benefits to be derived from the information. Olson drives this point by discussing the newsworthiness of information. He speaks about the public that requires news that will capture their attention and information that may be ignored by "picturesque protests and unruly demonstrations". The importance of what is going on around us depends on the reasons we intend on obtaining this information. For example, "... events that unfold in a suspenseful way or sex scandals among public figures are fully covered by the media, whereas the complexities of economic policy or quantitative analyses of public problems receive only minimal attention." (Olsen) This also suggests that events that attract media attention (colorful events) would tend to overshadow other important events, minimizing its public reach.

2. The United States has a graduated income tax but also allows numerous loopholes so that wealthy taxpayers often pay little tax - according to Olson - because the details of tax laws are widely unknown and often times reflects the interest of the small number of individuals who are organized and more prosperous tax payers. An example Olson used to describe this explanation was the medical physicians. He says that although the need for government funded insurance (Medicare and Medicaid) had become the focus for low or middle income individuals, there had been a neglect to realize that the result would be large increases in the income got prosperous physicians and other providers of medical care. "The loopholes are more often tilted toward a minority of more prosperous taxpayers." (Olson)

3. Smaller countries might be more likely to be more successful at collective action and have better coordinated labor movements than large  countries because the larger the number of individuals that would benefit from a collective good, the smaller the share of gains from action in the group interest that will accrue to the party that undertakes the action. Olson goes on to say, "Thus, in the absence of selective incentives the incentive for group action diminishes as group size increases, so that large groups are less able to act in their common interest than small ones." (Olson)

Rational Ignorance refers to situations in which it doesn't make economic sense for a citizen to invest the time and energy to become informed about an issue.  Some economists believe people are "rationally ignorant" when it comes to voting.  For example, it takes a tremendous amount of time to fully research every issue, and each candidate's platform before deciding whom to vote for.  However, it doesn't make much economic sense in terms of opportunity cost to invest hours into this research when your vote only represents one out of the 100 million that will be cast.  Since your vote will have such a small impact, it doesn't make much sense to spend so much time doing research when you could be working or spending leisure time with your family. When people realize this is the case they will choose not to invest an inordinate amount of time in making their decision. Thus this ignorance is believed to be "rational."

The United States has a graduated income tax but allows numerous loopholes so that wealthy taxpayers could pay less.  Everyday citizens do not understand the complicated rules of income tax to take advantage of it while the wealthy taxpayers normally pay people to find the loopholes.  They put certain rules in place to encourage taxpayers to put up a building or build a house.  By lowering taxes, a wealthy taxpayer might decide to put up a building.  Doing so allows everyday workers the opportunity to get a job and feed his family. 

 Collective action is the behavior of a group working toward a common goal.  When individuals engage in collective action, the strength of the group's resources, knowledge and efforts is combined to reach a goal shared by all parties.  In large groups there will be a disjuncture between the individual’s interest and the group’s interest, even in the absence of transactions costs. 

After reading Chapters One and Two of Mancur Olson’s Rise and Decline of Nations, please answer these questions:     

1.       What is “rational ignorance”?

a.      “Rational ignorance” is a phenomenon cited by Olson that occurs when the potential benefits of being informed about a set of issues is outweighed by the cost of becoming informed about said issues. For example, the amount an average student or adjunct faculty member would benefit by understanding the governing structure of Brooklyn College is so minimal as to make it not worth the time it takes to understand that structure. These students and adjunct faculty would be considered “rationally ignorant.”

2.       What is Olson’s explanation for why the United States has a graduated income tax but also allows numerous loopholes so that wealthy taxpayers often pay little tax?

a.      Because of the “rational ignorance” of the general electorate (at least as far as the minutiae of tax policy), American tax policies are often skewed in a way that benefits a disproportionately small group of people (usually special interests that are far more knowledgeable about the issues). The American graduated income tax reflects the progressive tendencies of public opinion and political leaders (at least in the broad sense), but the existing loopholes are the result of the influence of the smaller, informed groups.

3.       Why might smaller countries be more likely to be more successful at collective action and have better coordinated labor movements than large countries?

a.      Olson contends that smaller countries would be more successful with collective action as smaller groups tend to have a higher per capita benefit than larger groups (i.e. the larger the group, the less each individual member is likely to benefit). Smaller countries would also likely have better coordinated labor movement, Olson submits, because it is easier to create homogeneity (and by extension, to generate consensus) in a smaller country than in a larger one.

1.What is “rational ignorance”?

Rational ignorance is the choice of an individual not to educate him or herself about a particular subject matter. In Olson’s description he uses the behavior of a typical citizen in relation to voting. It is generally believed that a typical voter does not study the issues or candidates involved, because their individual vote will not alter the outcome of the election anyway. I've experienced this in the public sector. Individuals felt that researching the unions listed on the ballot was a waste of time. They believed their vote wouldn’t make a difference in the overall outcome. Which in this case, it may have.

2.What is Olson’s explanation for why the United States has a graduated income tax but also allows numerous loopholes so that wealthy taxpayers often pay little tax?

Olson continues to note that modern democracies display inconsistent behaviors. Most developed democracies have adopted a progressive tax structure. The imbalance of this structure is widely known, but it is the tax laws that the majority fail to familiarize themselves with. The majority of people will be familiar with the controversy of certain issues, but never have an in depth insight. The smaller, organized, and more prosperous groups are the ones that pull the strings.

3. Why might smaller countries be more likely to be more successful at collective action and have better coordinated labor movements than large countries?

Smaller groups have a much more concentrated effect on each others choices. This will encourage bargaining to reach an agreement that has mutual benefits. The larger the group the smaller the share of gains. It is also mentioned that selective incentives inspire groups to act collectively in order to obtain a collective good. Smaller groups will normally act in the interest of each other and are more likely to act in collective action. It is much more difficult for a larger group to organize and engaged in collective action with selctive incentives.