Reviews

Recently, various authors have examined the relationship between growth in government size and total economic growth. In each case, the authors permitted only a monotonic relationship. This paper examines the issue of a non-linear relationship between growth in government and overall growth in the economy.Government contributes to total economic output in various ways. The provision of Pigovian public goods enhances the productivity of the private sector inputs increasing total output. However, the public decision-making process can result in an inefficient quantity of public goods. The likelihood of this outcome increases with the size of government. Further negative effects are created by the revenue raising and spending mechanisms of government, and the increasing diversion of resources into unproductive rent-seeking activities. The magnitude of these effects is likely to increase with the relative size of government.     

Admissible and sincere strategies under approval voting

This essay reasses the assumptions of the Brams-Fishburn theory of approval voting, and proposes modifications to make the theory correspond better with likely voting choices. With a small number of candidates, voters who use the inadmissible strategy of voting for all candidates can help to produce a result that better reflects the voters' wishes than is possible with admissible strategies, so we propose a widening of the definition of admissibility to encompass this case. With more than three candidates, we define first-order admissible strategies, which are the most likely strategies to be used in practice, and are also strongly sincere, in that a vote for any candidate is always accompanied by votes for all more or equally-preferred candidates. Their number is less under approval voting than under plurality voting. Both proposed modifications strengthen the technical arguments favoring approval voting over plurality voting.     

The pits and the core: Simple collective decision problems with concave preferences

This essay extends the theory of simple collective decision problems to spatial games in which (contrary to the traditional assumption) each agent's preferences are concave, in the sense that the alternatives that the agent does not prefer to any particular reference alternative together constitute a convex set. Such concave preferences might characterize decision problems in which, say, a site must be selected for some obnoxious facility, such as a prison, garbage dump, or facility for managing hazardous materials. The results indicate that, under these conditions, the (weak -)core can be structurally unstable, changing discontinuously with apparently minor perturbations of the decision problem. The main theorem identifies a curious property of the core when the set of feasible alternatives is compact and convex and each agent's preferences are strictly concave. Namely, a point in the feasible set's interior can belong to the core only if there is no feasible alternative that makes every member of any winning coalition strictly worse off. In this sense, an interior point belongs to the core only if it lies in the pits.A preliminary version of this essay was presented at the West Coast Conference on Small Groups Research, Stanford University, 17 April 1985, and the Experimental Social Choice Workshop, Utah State University, Logan, Utah, 20–21 June 1985. This material is based on work supported by grants from the National Science Foundation (Grants SES 83-12123 and SES 84-10094), the Real Estate Center and Department of Decision Sciences of The Wharton School, and the Research Fund of the University of Pennsylvania.     

Promise and peril

The size of the federal budget tells only one part of the tale of government's presence in the market economy. The enormous amounts of non-tax dollars government requires to be spent on regulation – estimated at $647 billion per year – powerfully argue for some sort of regulatory scorekeeping. Regulatory costs are equivalent to over one-third of the level of government spending. A regulatory budget can be an effective tool both for spurring reform and monitoring regulatory activity.At bottom, today's rulemaking process is plagued by the fact that agency bureaucrats are not accountable to voters. And Congress – though responsible for the underlying statutes that usually propel those unanswerable agencies – nevertheless can conveniently blame agencies for regulatory excesses. Indeed, Americans live under a regime of Regulation Without Representation.A regulatory budget could promote greater accountability by limiting the regulatory costs agencies could impose on the private sector. Congress could either specify a limit on compliance costs for each newly enacted law or reauthorization of existing law, or Congress could enact a more ambitious full-scale budget paralleling the fiscal budget, a riskier approach. A comprehensive budget would require Congress to divide to a total budget among agencies. Agencies' responsibility would be to rank hazards serially, from most to least severe, and address them within their budget constraint. In either version of a regulatory budget, any agency desiring to exceed its budget would need to seek congressional approval.Regulatory costs imposed on the private sector by federal agencies can never be precisely measured, and a budget cannot achieve absolute precision. Nonetheless, a regulatory budget is a valuable tool. The real innovation of regulatory budgeting is its potential to impose the consequences of regulatory decisionmaking on agencies rather than on the regulated parties alone. Agencies that today rarely admit a rule provides negligible benefit would be forced to compete for the right to regulate. While agencies would be free to regulate as unwisely as they do now, the consequences could be transfer of the squandered budgetary allocation to a rival agency that saves more lives.Budgeting could fundamentally change incentives. Under a budget, adopting a costly, but marginally beneficial, regulation will suddenly be irrational. Congress would weigh an agency's claimed benefits against alternative means of protecting public health and safety, giving agencies incentives to compete and expose one another's bogus benefits. Budgeting could encourage greater recognition of the fact that some risks are far more remote than those we undertake daily. In the long run, a regulatory budget would force agencies to compete with one another on the most important bottom line of all: that their least-effective rules save more lives per dollar spent (or correct some alleged market imperfection better) than those of other agencies.There are clear benefits to regulatory budgeting, but there are also pitfalls. For instance, under a budget, agencies have incentives to underestimate compliance costs while regulated parties have the opposite incentive. Self-correcting techniques that may force opposing cost calculations to converge are only at the thought- experiment stage. However, limitations on the delegation of regulatory power and enhancing congressional accountability can help.Certain principles and antecedents can help ensure that a regulatory budgeting effort succeeds. Explicitly recognizing that an agency's basic impulse is to overstate the benefits of its activities, a budget would relieve agencies of benefit calculation responsibilities altogether. Agencies would concentrate on properly assessing only the costs of their initiatives. Since an agency must try to maximize benefits within its budget constraint or risk losing its budget allocation, it would be rational for agencies to monitor benefits, but Congress need not require it.Other ways to promote the success of a budget are to: establish an incremental rather than total budget; collect and summarize annual report card data on the numbers of regulations in each agency; establish a regulatory cost freeze; implement a Regulatory Reduction Commission; employ separate budgets for economic and environmental/social regulation; and control indirect costs by limiting the regulatory methods that most often generate them.A regulatory budget is not a magic device alone capable of reducing the current $647 billion regulatory burden. Yet a cautious one deserve consideration. Having good information is an aid in grappling with the regulatory state just as compiling the federal fiscal budget is indispensable to any effort to plan and control government spending.     

Explaining collective action with rational models

We note the failure of a rational egoist model of human behavior to generate successful predictions of important economic and political behaviors including collective action. Alternative models are presented that combine rational, utility-maximizing features with concerns about collective welfare. The performance of these models in explaining contributing behavior in an experimentally-induced public goods game is compared to the performance of a rational egoist and collective welfare model. The results indicate that a model in which subjects are presumed to trade off benefits to self with benefits to others provides a better explanation of actual contributing behavior than either the rational egoist or collective welfare models, but still explains only a small amount of the individual variance in contributing behavior.The Institute for Political Economy, Utah State University provided important financial support for this study. Donald Cundy, Alan Huston, Joe Oppenheimer, John Orbell, and Randy Simmons provided valuable comments on earlier drafts.     

The dynamics of financial globalization: Technology,market structure,and policy response

The development of increasingly transnationalized (globalized) financial markets raises several key issues for the analysis of politics, public policy, and the national state. This article suggests that financial globalization increasingly constrains policymakers and circumscribes the policy capacity of the state. After looking briefly at a range of approaches to the process of financial globalization itself, the author suggests that technological change is the main independent variable, by reducing transaction costs and dramatically increasing the price sensitivity of financial markets across borders, while at the same time making possible a range of economies of scale. These very developments have a knock-on effect throughout the domestic and international economies. They in turn make obsolescent the political economies of scale — the governance structures — which have characterized economic policy in modern nation-states, undermining the capacity of the state to produce public goods. At the same time, globalized financial markets interact with rapidly changing interest group structures and divided state structures, especially through regulatory arbitrage. Without the development of transnational regimes capable of regulating global financial markets, the structural basis of the national state itself is being undermined, and Polanyi's Great Transformation is over.     

Theories of budgetary decisionmaking and revenue decline

The responses of municipal governments to declining real revenue are used to conduct a critical test of three theories of budgetary decisionmaking. Contrary to the expectations generated by the bureaucratic process theory, there is little evidence of the application of any budget cutting algorithm based on stable account priorities. Contrary to the expectations generated by the interest group politics model, there is equally little evidence of across-the-board cuts. The results are, however, broadly consistent with what we have termed the managerial theory which emphasizes the relative controllability of expenditure categories, transient decisionmaker preferences, and the stochastic impact of short-term expenditure solutions. The difficulties associated with the conduct of critical tests in this area are also discussed.Supported by NSF grant DAR 80-11208.     

Do revenue forecasts influence budget setting? A small group experiment

This article reports on the results of a small group experiment relating the effects of situational and psychological factors to the use of revenue forecast information on budgetary decision-making. The results suggest objective information is not completely ignored because of conditions in the budgetary environment and that one's role in the budget process influences how objective information is used. The results also indicate that some useful insights for budget theory are possible from small group experiments.This research is part of the Public Management Information Systems Project. The authors would like to gratefully acknowledge the helpful comments provided on earlier drafts of this paper by William Ascher, Joseph Lipscomb and two anonymous referees.     

Budget deficits and interest rates in the United States

In this paper, an attempt has been made to reexamine the effect of budget deficits in the United States on interest rates. Unlike the previous studies which use only one definition of the dependent variable, we have used all three, namely, the nominal and the ex-post and the ex-ante real interest rate. Further, unlike previous studies, we considered both short-term and long-term interest rates. Our results provide absolutely no support for the proposition that federal deficits affect interest rates and thus contradict the recent findings by Cebula (1987) and Kolluri and Giannaros (1987). Finally, the paper provides some further support for the inverted Fisher hypothesis proposed by Carmichael and Stebbing (1983).Thanks are due to Zheng Wei for research assistance.     

Private sector shrinkage and the growth of industrialized economies: Reply

Further tests and thoughts on the OECD data lead me to conclude that, if anything, my 1986 paper underestimated the magnitude of the inverse relation between economic growth and government size. If one takes the nominal-based measure of government scale, as advised by Saunders, the significance levels, coefficient magnitudes and goodness of fits improve over what I found with my initial investigation. I would suggest that Saunders reconsider his reluctance to believe that the size of the public sector is unrelated to economic growth in OECD countries over this time period.One additional thought appears relevant to the current policy debate concerning budget deficits and economic performance within the major industrialized economies. The empirical work displayed here and in my 1986 paper suggests serious problems associated with the various proposals urging governments to raise taxes and/or ease fiscal policy. Elsewhere, I have suggested that available empirical evidence implies that plans to increase taxes as a way out of budget deficits are plans that carry the potential for raising government spending and possibly future deficits as well. Coupled with the evidence presented here, we should also recognize the potential of tax increases to raise the level of government participation in a country and, accordingly, exert inverse influences on its future economic performance as well. As suggested in my 1986 paper, the empirical evidence may suggest the following irony: While political participants may crave larger and larger non-market resource allocations, their future ability to satisfy that craving may very well be severely constrained by the satisfaction of that same appetite.     

Opening late-industrializing economies: lessons from Argentina and Australia

Economic liberalization has met substantial resistance in polities as different as Argentina and Australia. For these late industrializing nations the verb protect came to mean much more than just granting favors to industrialists. It also involved reducing the risks previously taken by societies engaged in economic modernization. After histories of vulnerability to external forces, they deliberately fostered collusion between the public and private sectors in an attempt to achieve benefits at the lowest cost for participants from all social classes. Consequently, economic liberalization now demands more than revisions in economic logic and the attitudes of industrialists, as recent attempts to reform economic strategy in both nations indicate. For three generations who were nurtured on these rent seeking notions of political economy, it requires a fundamental transformation of popular attitudes about the creation and distribution of private and public goods.This article is a substantially revised version of a paper I presented at the 46th International Congress of Americanists, Amsterdam, The Netherlands, July 4–8, 1988. I am especially grateful to Carlos Waisman who invited me to write the paper, to an anonymous reader for this journal who suggested many useful revisions, and to the journal's editor, William Ascher, for his leadership.     

Equity concern and the political economy of protection in New Zealand

A number of empirical models have found protection to be greatest for industries employing poorly skilled, low paid workers. This has caused some economists, notably Robert Baldwin, to suggest that equity concern by politicians in an alternative to the interest group hypothesis. This paper reports the result of a test on New Zealand data that shows that this equity concern is absent for industries with few employees or firms. Equity concern variables were only important for industries with many employees and firms. This suggests that equity concern is selective and may be reconcilable with self-interest motivations.I am grateful to John Tressler, Richard Harris and an anonymous referee for their helpful comments.     

Protectionist policies as the regulation of international industry

The political feasibility of protectionist policies that regulate international industry derives from the absence of overt collusion among domestic import-competing producers. The regulation of international industry cannot be explicit since governments would thereby be perceived to be approving (or instigating) international collusion. Hence, voluntary export restraints have been popularly presented with a focus on the difficulties confronted by domestic import-competing producers and a de-emphasis on the mutual gains to domestic and foreign producers from monitoring by a foreign government of a restrictive export cartel arrangement. Similarly, trigger-price mechanisms have popularly been explained in terms of the need for anti-dumping measures to preserve fair competition. Likewise, the involuntary export tax derived in the first instance from an administratively validated (but, as demonstrated by Kalt's econometric analysis, contentious) complaint of unfair foreign competition. Voluntary export restraints, trigger-price mechanisms, and involuntary export taxes are however protectionist devices, the beneficiaries of which can transcend national jurisdictions, and which have in common the characteristic that the gains to domestic industry interests derive from the regulation of foreign competitors.A previous version of this paper was presented at a conference on Economics and Power organized by the FWS Institute of Zug and held at Interlaken, Switzerland in July 1988.     

Postmodern policy analysis: Discourse and identity in welfare policy

Postmodern inquiry into the discursive construction of identity has the potential to make a distinctive, democratizing contribution to public policy analysis. More so than conventional approaches, a postmodern policy analysis offers the opportunity to interrogate assumptions about identity embedded in the analysis and making of public policy, thereby enabling us to rethink and resist questionable distinctions that privilege some identities at the expense of others. Public policy analysis can benefit from postmodernism's emphasis on how discourse constructs identity. A review of postmodernism and postmodern approaches to interrogating identity is followed by an exercise in postmodern policy analysis. Social welfare policy in contemporary postindustrial America is shown to participate in the construction and maintenance of identity in ways that affect not just the allocation of public benefits, but also economic opportunities outside of the state. Mired in old, invidious distinctions (e.g., independent/dependent, contract/charity, family/promiscuity), welfare policy discourse today helps to recreate the problems of yesterday, particularly as a critical factor in reproducing women's poverty.     

Fifty years of human rights: An emergent global regime

The emergent human rights regime includes three distinct elements; international and domestic laws; government and corporate policies that deny or affirm rights; and norms of behavior that are applied against groups and individuals. The Universal Declaration of Human Rights and its successors were milestones in international law that sprang from the euphoria of victory in World War II. When policies violated these precepts, they came under intense international scrutiny, which produced highly visible, though not universal, improvements; and it was not long before governments and other organizations adopted positive policies that improved access to these rights. Policy scientists can analyze these rights as demands or claims that enjoy various degrees of legitimacy within both the civic and the public order. Behind the laws and policies lies a widespread awareness of the standards of human dignity. This awareness is gradually taking on a life of its own and human rights begin to function as a system of expected behavior that is becoming a global regime that reflects the preferences of nongovernmental players acting under customs and rules of their own making. Behavior that respects essential rights is increasingly taken as an obligation transcending national borders and subtly enriching the decisions and transactions of states, corporations, and special purpose organizations.     

Growth controls: policy analysis for the second generation

The 1970s spawned a first generation of growth controls which featured explicit (or implicit) restrictions on residential housing construction. These restrictions were typically implemented in small, affluent, and predominantly white suburban communities. Policy analysis responded by focusing almost singlemindedly on how such supply-side restrictions might increase housing prices and drive out the poor. The 1980s and 1990s have, however, given birth to a more comprehensive second generation of controls which many major cities and metropolitan areas are considering. This generation ties commercial and industrial as well as residential development to the reduction of the negative externalities and congestion costs associated with growth. To fully evaluate this second generation, policy analysis must take into account not only housing price effects and the rate of job creation but also the full range of amenity effects associated with differing rates of growth and attendant levels of traffic congestion, air pollution, and other public bads. We develop a framework for such second generation growth control analysis using San Diego as an example.     

Optimal team and individual decision rules in uncertain dichotomous situations

In this paper, we consider the problem of determining the optimalteam decision rules in uncertain, binary (dichotomous) choice situations. We show that the Relative (Receiver) Operating Characteristic (ROC) curve plays a pivotal role in characterizing these rules. Specifically, the problem of finding the optimal aggregation rule involves finding a set ofcoupled operating points on the individual ROCs. Introducing the concept of a team ROC curve, we extend the method of characterizing decision capabilities of an individual decisionmaker (DM) to a team of DMs. Given the operating points of the individual DMs on their ROC curves, we show that the best aggregation rule is a likelihood ratio test. When the individual opinions are conditionally independent, the aggregation rule is a weighted majority rule, but with different asymmetric weights for the yes and no decisions. We show that the widely studied weighted majority rule with symmetric weights is a special case of the asymmetric weighted majority rule, wherein the competence level of each DM corresponds to the intersection of the main diagonal and the DM's ROC curve. Finally, we demonstrate that the performance of the team can be improved by jointly optimizing the aggregation rule and the individual decision rules, the latter possibly requiring a shift from the isolated (non-team) optimal operating point of each DM.Research supported by NSF grant #IRI-8902755 and ONR contract #N0014-90-J-1753.     

The median and the competitive equilibrium in one dimension

Two alternative models of legislative outcomes are the minimum winning coalition and the competitive equilibrium (Koford, 1982). In a unidimensional setting, the outcome under the former is the median, while the outcome under the latter is the highest net demand location.This paper describes the competitive equilibrium in a unidimensional model, and shows that under some common conditions it coincides with the median, in particular for pure redistributive issues. However, for distributive issues, the two equilibria will differ. Finally, the comparative statics of the two models are examined; while the winning coalition is sensitive only to changes in the location of the median, for distributive issues the competitive equilibrium has the standard economic comparative statics that the outcome adjusts in the direction of the change in preferences.     

Positivist beliefs among policy professionals: An empirical investigation

A group of scholars argue that mainstream policy analysis ispositivistic in its theory and practice. This paper reports the resultsof an e-mail survey that was conducted to investigate the extent,dimensions, and determinants of positivist beliefs among policyprofessionals. The survey results show that policy professionals aremore positivistic in their abstract beliefs and less so in their beliefsabout the role of politics and analysis in the policy process.Educational background is the most important factor determining beliefs:The economists and mathematicians/scientists are most positivistic intheir beliefs, while political scientists are least positivistic. Also,practitioners take more positivistic positions than academics. Overall,the largest percentage of the respondents see the postpositivistfacilitator role as the proper role for policy analysts,but there is also a significant percentage of those who prefer thepositivist problem solver role.     

Reaganism,pluralism, and the politics of pesticide regulation

A key priority of the Reagan Revolution was an attack on the system of health, safety, and environmental regulation that arose in the 1970s. This article evaluates Reagan's regulatory reforms through the lens of one particularly important case study, the regulation of pesticides. This case will be used to explore two issues: (1) an empirical question about the magnitude of policy change achieved by the Reagan administration in the area of environmental regulation; and (2) a conceptual and theoretical question about the dynamics of subgovernments or issue networks, and their relationship to policy change. The analysis reveals that while the Reagan administration has produced important changes in both policy style and substance, in comparison to the changes that occurred around 1970, they have been relatively modest. Reagan's reform efforts failed largely because the President only controls a subset of the relevant components of the policy regime. Environmental interests were strongly entrenched in regime elements beyond Reagan's immediate control - in particular Congress, the courts, and the ruling public philosophy - and were thus able to thwart many of Reagan's initiatives.