Economics
College of Humanities and Social Sciences

The Propensity to Truck, Barter and [Impede] Exchange

Deema Yazigi

Major Professor: Richard E Wagner, PhD, Department of Economics

Committee Members: Walter E. Williams, John N. Paden

Enterprise Hall, #318
November 19, 2013, 03:00 PM to 12:00 PM

Abstract:

The first chapter, titled "Democracy: the Unknown Ordeal," addresses the dilemma of political leaders seeking to obtain and maintain power. Economists and political scientists have been studying what governs political behavior across polities for many years. How do leaders capture power? How do leaders maintain power? How can their power be restrained? Can the interests of leaders be aligned with those of their citizenry? This paper analyzes the political models developed by Mancur Olson, and Bruce Bueno de Mesquita and Alastair Smith. While Olson remains a very influential figure for his analysis of stationary and roving bandits, his model fails to explain the nature of democracy in the United States. Building on the work of Bueno de Mesquita and Smith, I integrate their evolutionary model of politics with Olson’s insight to explain the institutional structure of the American democracy and the political characteristics selected for in such an environment. I examine how coalitions are satisfied outside of the private and public goods dichotomy, and how the dis-coordination between the goals of the People, the politicians, and the parties is embedded in the political institution itself.

The second chapter, titled "The Rationality of the Pursuit of Revenue: Constructivist and Ecological," delves into the question of rationality, efficiency, and persistence. Economics, political science, and legal studies have all been dominated by the constructs of homo-economicus, homo-politicus, and, generally, by the Reasonable Man. By reducing the complexity of acting man into a more manageable mould, economists have made their analysis easier; however, there is no free lunch, and this reduction has in some ways been costly to these sciences. Many theories built upon it have produced unrealistic renderings and inaccurate predictions of human behavior. By applying the framework of ecological rationality to the traditional concept of economic efficiency it can be shown that “sustainability” need not imply economic efficiency. This broader conception will explain why political leaders often resort to policies which, under the traditional analysis, appear inefficient. This chapter will show that these seemingly inefficient policies may, under the right conditions, best serve the leader’s ends; they may be ecologically rational.

The third chapter, titled "The Logical and Ecological Foundation of the Bootleggers and Baptists," provides a clear definition of the Bootleggers and the Baptists by differentiating between Bootleggers and Rent-Seekers and by dichotomizing the Baptists into Idealists and Realists. The definitions will prove crucial to understanding some of the seemingly paradoxical historical episodes. The Bootleggers may try to pressure the leader to impose a regulation on a profitable activity, such as alcohol consumption or usury, in exchange for their loyal support, as they recognize people’s tendency to try to avoid the rule. Such attempts, however, are futile if the Bootleggers fail to find a Baptist group that can disguise their intentions with an ethical veil reducing the cost of forcing compliance.

My final chapter, titled "The Functional Relationship Between the Essential Ratio and the Size of Economic Activity," appends the framework of the selectorate theory to incorporate regulatory provision and models the behavior of the Baptists, Bootleggers, and rent-seekers. The mathematical model, which builds on a model of corporate governance, shows that once regulations are added into the picture, the size of economic activity no longer exhibits a positive monotonic relationship with the size of the essential ratio. In fact, there seems to be a threshold, or a tolerance point, for regulations, beyond which the regulated activities will move underground or be outsourced in extreme cases. In either case, the size of economic activity declines beyond the tolerance threshold regardless of the increasing size of the essential ratio.

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