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 government 2 – compare costs of MF vs GF 3 – 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

2 nd 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 Game 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