1. Information distortion and competitive remedies in government transfer programs: The case of ethanol Ronald N. Johnson and Gary D. Libecap

2. Motivation Wittman (1995): Democratic politics are inherently efficient. Competition creates sufficient info on costs and benefits for voters to make efficient choices. Market analogy. Does this behavior mimic market efficiency? Does survival indicate efficiency given costs of change?

3. Response Problem: Analogy breaks down. Govt. is often needed to provide info about transfers. Why? Politicians have incentives to limit and distort info. How? Ex. Framing a program as having wider appeal by extolling positive externalities, when it only benefits a small group. Result => Competition is unlikely to remedy problem. Q. Why do politicians get away with this?!

4. Problem Within industry, deceivers are subject to greater scrutiny & legal action. Discovery poses threat. (Unlike politics) Unclear prop. rights in political arena means politicians do not fully internalize costs or benefits of adhering or cheating.* Within politics, politicians are highly immune to constituents and recourse. Framing private transfers as public ones is likely to go unpunished. Why are politicians insulated from recourse?

5. Problem 1.Politicians do not punish each other, and organized opposition is needed. Strategic decisions: future log-rolling opportunities; support from hurt interest; reelection. Tradeoffs: weight expected gains from exposing lies vs. expected losses. 2.Uncertainty remains even when competition exists for other reason (gathering, synthesizing, disentangling, evaluating).

6. The case of Ethanol - Background Benefits in the form of price manipulation and deficiency payments, received by a narrow interest group at the expense of all taxpayers. Exploding deficiency payments in the 80’s ==> $88m to $25b Readily available MTBE a cheaper and more efficient substitute. Ethanol not competative.

7. So what happened? 1986: Corn interests able to suppress unfavorable USDA cost benefit analysis because of a lack of an organized opposition. Touted the externalities to obscure report (environmental, reduction in foreign oil dependence, rural development, reducing farm costs) But when opposition forms…

8. Pro-ethanol legislation is scrutinized and defeated in congress (starting in 1987). Info is revealed: ethanol might actually have a negative environmental effect. New info is discovered: MTBE health risks. Implication: competition exists, but biased interest and the complexity of the issue cloud voter judgment => hardly an efficient info distribution.

9. The Federal Civil Service System and the Problem of Bureaucracy Ronald N. Johnson and Gary D. Libecap

10. What is the problem? “Lack of accountability, responsiveness, and productivity.” Civil servants face different incentives: –promotions not based on performance –insulated from political control –agency and personal motivations Federal supervisors are constrained in punishing or rewarding performance. Q. Why have efforts to reform been unsuccessful?

11. Principal/Agent Relationship Lack of clear property rights (i.e. confusion over who controls the bureaucracy built into Constitution) => Rivalry between Congress and President for control. Principals (voters) are heterogeneous in their objectives; also cannot monitor agents (bureaucrats). Bureaucrats do not always have same goals as politically appointed superiors. (Motivations) Federal Unions

12. (+) Constrains opportunistic behavior by politicians and ‘crats. Congress or President cannot completely control them. Historical specter of spoils-system patronage. (-) Civil service system reduces the ability of politicians to reward or punish bureaucrats (or implement agenda) 1982 example: EPA officials resisting new authority; conflicted with “personal and bureau goals”.