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Pros and cons of public choice by consensus decisions

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1. Public Choice
The Free City of Christiania is a community of around 800 adults and 250 children within the city of Copenhagen. It was set up by "hippies and others" and is not subject to the same laws as the rest of Denmark. "There is no governing council or other administrative body, and everything is decided by consensus...In practice, this means that many decisions are never made...[T]ensions are rising among different groups of residents over how to share and pay for communal responsibilities" [Kinzer, New York Times, 5/16/1996, p. A3].

a. Discuss the advantages and disadvantages of this decision by consensus voting rule.
b. What voting procedures would you recommend for Christiania? What are the advantages and disadvantages of the voting rule you recommend?
c. Is there a voting rule that would always lead to a unique political equilibrium?
Explain why or why not.

2. Think about two public goods---public schools and food assistance for needy families. Consider the implications of the Tiebout model. Which of the goods is more efficiently provided locally? Which is more efficiently provided centrally? Explain.

3. The state of Minnegan is considering two alternative methods of funding local road construction, matching grants and block grants. In the case of the matching grant, Minnegan will spend $1 for every $1 spent by localities.

a. What is the price of an additional dollar of local spending in each case?
b. Which of the two methods do you think would lead to higher levels of local spending on roads? Explain your answer.

Problems on Taxation
4. Suppose that the U.S personal income tax system became a "flat tax" system, in which all tax payers paid a certain percentage of their incomes in tax, and in which there are no exemptions or deductions. In which way(s) could this flat tax be more regressive than the present U.S system? In which way(s) could this flat tax be more progressive than the present system?
(be sure to define what progressive and regressive taxes are)

By way of additional background, here is a "commentary" piece by Richard Rahn in the January 26, 2006, Washington Times that argues in favor of such changes:
http://washingtontimes.com/commentary/20060125-095139-5544r.htm

5. The largest tax break for most Americans is the mortgage interest tax deduction, which allows home owners to deduct from their taxable income the amount of money they pay in interest to finance their homes. This tax break is intended to encourage home ownership. Compare this tax deduction to a uniform tax credit for home ownership on equity and efficiency grounds.

One of the tax reforms debated last year involved changing the mortgage interest tax deduction. In fact, in November of 2005, the President's Tax Reform Panel recommended capping the mortgage interest deduction.

From the http://taxpolicycenter.org/home/:
For information on the President's Advisory Panel's recommendations (including a link to the 290 page document), see
http://www.taxpolicycenter.org/newsevents/events_trp.cfm
For information on who receives the mortgage interest tax deduction, see http://taxpolicycenter.org/publications/template.cfm?PubID=9344
For some analysis on changing from interest tax deductions to tax credits, see
http://www.taxpolicycenter.org/publications/template.cfm?PubID=9316

Solution Preview

1.
Basically, there are four types of voting rules:
1) One-voter-one-vote: Each voter votes only once for each political position allocated to his/her district. This method is misleading because it fails to indicate the voters' preferences for candidates that aren't chosen first.
2) One-voter-multiple-vote: Voters can vote for several candidates for the same seat. Can become very confusing
3) Approval Voting: Voters choose among the candidates on the basis of whether they approve of them. This is a straight up or down vote, such as movie reviewers sometimes use. Some candidates might win seats with just a few votes, if they received more than some others.
4) Pluralities and Majorities: Majority voting means that one candidate must take at least 51% of the vote in order to win. Plurality means that the person with the largest number of votes, regardless of whether it is a majority wins. In this system the desires of the minorities will be totally ignored.

Obviously all these rules have disadvantages, so a decision by consensus can be an effective method of governance. Unfortunately, it is one of the most time-consuming techniques for group decision-making. Consensus is not the same thing as unanimity. Rather, it is occurs when communications are sufficiently open to make everyone in the group feel that they have had their fair chance to influence the ...

Solution Summary

Pros and cons of public choice by consensus decisions

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