Tutorial II (Based on Chapter 9: Political Economy)
Submission deadline: 16 th August 5 PM.
1. In theory, a government can efficiently finance public goods by simply asking
individuals to pay their valuation of the good (Lindahl pricing). In practice, such a
solution faces the problems of preference revelation (individuals not honestly
reporting their preferences), preference knowledge (individuals not knowing their
preferences), and preference aggregation (the government being unable to collect
data on everyone’s preferences). Explain each of these problems with an example.
2. Explain the difference between direct and indirect democracy? Should we switch to
direct democracy tomorrow? Give reasons.
3. Alfie, Bill, and Coco each value police protection differently. Alfie’s demand for the
public good is Q = 70 – 10P, Bill’s demand is Q = 70 - 5P, and Coco’s demand is Q = 44 -
4P. If the marginal cost of providing police protection is $10.00, what is the socially
optimal level of police provision? Under Lindahl pricing, what share of the tax burden
would each of the three people pay?
4. Politicians in India change parties once they win election. Is this efficient or should this
be banned? Explain.
5. Explain the median voter model. A problem with the median voter outcome is that it
does not take into account intensity of preferences. Suppose that the government
decided to give multiple votes to people with strong preferences. Would this solve the
problem? Why or why not?
6. Explain the concept of lobbying. Is this efficient or should this be banned?
7. Explain Leviathan theory. Do you agree with the assumptions underlying the Leviathan
tendencies of government?
