Consider again, as in exercise 27.11, the political incentives for legislators that represent districts. In exercise 27.11, we considered pork barrel projects as publicly funded private goods that residents within the targeted districts enjoyed but everyone paid for. This resulted in a “Tragedy of the Commons” where legislators view the pool of taxpayer resources as a common pool that funds their own pet projects for their districts. As a result, such pork barrel projects are over-provided (much as fishermen overfish publicly owned lakes) — leading to inefficiently high government spending.
A: Now suppose that the projects in question are not private goods but rather local public goods; that is, suppose that the benefit B of a project in district i is a benefit that each of the n residents of district i enjoy equally.
(a) In what way do your answers to A (a) through A (f) of exercise 27.11 change?
(b) Does your basic conclusion from exercise 27.11 still hold?
(c) Next, suppose that each project, while located in one district, benefits all N n citizens of the country equally; i.e. suppose that projects are national public goods without geographic boundaries in which benefits are contained. Does your basic conclusion change now?
(d) True or False: The extent to which the fraction of projects requested by legislators is inefficient depends on the degree to which the benefits of the project are national rather than local.
B: Now consider the way we modeled these issues in part B of exercise 27.11. Each district gets a project, with the costs and benefits varying with the size of the project. The cost of providing y in a district is again c (y) = Ayα, but the benefit of the project is reaped by each of the n residents of the district—i.e. the benefit is b(y) = Bnyβ. Assume again that α > 1 and β ≤ 1.
(a) Repeat B (b) through B (e) of exercise 27.11 and determine yeq and y∗.
(b) Are the projects again inefficiently large? How does the inefficiency vary with N?
(c) Next, suppose that the benefits of each project are spread across all n N citizens. Derive yeq and y∗ for this case of each project being a national public good.
(d) Is there still an inefficiency from having legislators requesting projects for their districts?