Occupational Health and Safety, Canadian Edition

15th Edition
by David L. Goetsch, University of West Florida and Oskaloosa-Walton Eugene Ozon, Algonquin College
1035 Solutions 49 Chapters 1382 Studied ISBN: 0133450244 5 (1)

Chapters 5A: DQ 1

APPENDIX DISCUSSION QUESTIONS

1. Explain how affirmative and negative majority votes can sometimes lead to inefficient allocations of resources to public goods. Is this problem likely to be greater under a benefitsâ€received or an abilityâ€toâ€pay tax system? Use the information in Figures 1a and 1b to show how society might be better off if Adams were allowed to buy votes.

Step-By-Step Solution

APPENDIX DISCUSSION QUESTIONS

1. Explain how affirmative and negative majority votes can sometimes lead to inefficient allocations of resources to public goods. Is this problem likely to be greater under a benefitsâ€received or an abilityâ€toâ€pay tax system? Use the information in Figures 1a and 1b to show how society might be better off if Adams were allowed to buy votes.

Answer: The problem arises because the oneâ€‘person oneâ€‘vote rule does not allow voters to register the strength of their preferences. In the textâ€™s example, three peopleâ€”Adams, Benson, and Conradâ€”have preferences with regard to the benefits of national defense as follows: It is worth \$700 to Adams, \$250 to Benson, and \$200 to Conrad for a total of \$1,150 worth of benefits. The national defense program would cost \$900 to be borne by each voter equally, or \$300 each. This program would lose a majority vote because neither Benson nor Conrad would be willing to pay \$300 for it. However, the total benefit to society in this threeâ€‘voter world would have been \$1,150. A â€œnoâ€ vote is therefore inefficient in the economic sense.

On the other hand, suppose the program was worth \$100 to Adams, but \$350 each to Benson and Conrad for a total benefit of \$800. In this case the program would win because both Conrad and Benson would vote for it, but Adams would not. The \$900 spending program would be approved even though it was worth only \$800 to society. In this case a â€œyesâ€ vote is inefficient in the economic sense.

The problem is likely to be greater under an ability-to-pay system. Under a benefits-received scheme, the users of the public goods are the ones who will pay for it. If they perceive that the benefit exceeds the cost, they will vote for it. Those not intending to use the public good (and thus bear the taxes associated with its use) will be less likely to object to the project. Under an ability-to-pay system there is a mismatch between the beneficiaries of the public good and those who bear the cost. Those benefiting but not contributing will be inclined to vote for the public good, even if they would not be willing to pay for those benefits themselves. Those contributing but not benefiting are unlikely to support, even if the net benefit to society is great.

In Figure 1a, we can see that society would be better off if Adams had been allowed to pay enough to Benson to get Bensonâ€™s â€œyesâ€ vote. Benson should be willing to vote â€œyesâ€ for any amount above \$50, because then his benefits would exceed the \$300 cost of the defense program. Letâ€™s say Adams paid him \$75 to vote â€œyes.â€ Then, Benson receives \$75 plus \$250 worth of defense benefits for a total benefit of \$325 for which he pays \$300 in taxes. Meanwhile, Adams has received his \$700 worth of defense benefits for a cost of \$300 in taxes and \$75 payment to Benson.

In Figure 1b, Adams could pay \$75 to Benson again to vote â€œno.â€ Now Adams incurs only \$75 cost rather than the \$200 cost differential between his cost and benefits from the defense program in Figure 1b. If the program had passed, Benson would have gained \$50 in net benefits, but without the program and with Adamsâ€™ payment he has gained \$75 in net benefits.