Review part 2

BIG PICTURE• Market Failure More government• King Mosiah• Government failure– Self-interested (BK, Select, Lobbyists, Bureaucracy,

Hayek)– Fractured– Voters are (rationally) ignorant

1 – Therefore, no government2 – compare costs of MF vs GF3 – Acemoglu, Okonjo-Iweala, and your papers

What to expect

• Thursday – about 1 hour– 1-2 pages of multiple choice questions• More than one answer may be possible

– SHORT answer• Here are a set of theories. Which one applies to this real world

situation?• Briefly describe this idea or theory in your words

• Essays– Here are a set of essays, choose X of them.

Last time

• Market failure – one MC• Median voter theorem – one MC, one short• Rationally ignorant voter – one MC• Bandit King/Bates – one MC, 5 essays• Ethnicity – one MC, 1 essay• Selectorate – 3 essays• Efficient Corruption – 3 essays

2nd half• Acemoglu and Robinson on Institutions• Okonjo-Iweala application to Nigeria• Hayek on government failure• Fractured Government• Lobbyists– Baptists & Bootleggers; Pay to Play– Political and Labour Insiders/Outsider Models– Core supporter/swing voter

• Bureaucracy– Political Business Cycle (elections & fiscal year)– Budget Maximizers and Street-Level

What to expect• Okonjo-Iweala - an essay, maybe MC• Hayek - definitely a short answer, maybe more• ***Acemoglu – several questions• ***Lobbyists – several questions• Bureaucracy – applications • Fractured Government will show up somewhere• Food policy response essay• Minimal BK/Bates• Market failure and voters• Corruption• Selectorate

What do you hope I will ask?

• Little/optional selectorate• Institutions• Easier application - check

What shall we talk about today?

• Institutions• Nigeria• Fractured government 3• Bootleggers 2• Selectorate• Corruption• Insider/Outsider

Fractured Gov• What do we mean?– Different parts of the government have different

incentives/goals/methods/constiuencies• Listed a bunch of different ministeries, levels of

government (federal vs. state), actors, groups (parties), branches of gov (leg vs exec vs jud), ministry vs. bureaucracy

• How many veto points are there?• Lobbyists will go to the fracture that is most friendly to

it• Conflict within the government• Vietnam – Ag closed exports; Trade set fixed high price

70% tariff

• Peugot cars – lower competition• Government revenue from tariff• Customs office; railroads; airline• Anyone who has cars now and wants to sell• Baptist claim: solves congestion; environment;

reduce road fatalities; support domestic industry; lower inequality

• Bootlegger: paying government officials

• “Baptists” – provide moral justification for what the government is doing; grassroots

• “Bootlegger” – financial incentive, make money off the policy

• Corruption – The claim is that bribes will make an already bad system work more efficiently and that rich will pay more than poor, so it reduces inequality.

• Allowing bribes creates an incentive for more bad regulation

• Create a lot of veto points, so there are a lot places for people to pay bribes

• Q12 – Suppose that the value of the three firms is N1mil, 800k and 600k. The B does not know which firm is which. By setting a bribe price of 801k the two less-efficient don’t get the license, the big firm does.

Grade so far• Private transfers• Participation out of 10• Hayek out of 10• Yes, Minister out of 10• Total Homework/Quiz score out of 15• Group work out of 10• Midterm out of 100• Best out of 5• Current grade• A, C, D-

Class President Game3.54.05.06.28.09.09.5

15.615.918.520.422.427.641.651.266.9

• What did you learn?– Governments are self-

interested– Corruption– Insiders win– Hayek– Nigeria– TRANSPARENCY– Voter apathy

What does this teach about selectorate?

• In total, about half went to the public good• Democracy still ensured something went to

the public• People want to see private transfers, not

public goods – negative pressure