Economic outcomes, Public Economics

Suppose that economic outcomes can be classified as either good or bad. Governments differ in ability and this affects the likelihood of good outcomes. There are two types of governments: high ability or low ability. The prior probability that a government is high ability is 1/2. The probability that the economy is good given that the government is high ability is 3/4, while the probability that the economy is good given that the government is low ability is 1/4. In this case, the incumbent government can manipulate the economy and the electorate will learn (update) their beliefs about the ability of the incumbent government based on the observed state of the economy.

a) What is the probability that the government is high ability given that the economy is good? What is the probability that the government is high ability given that the economy is bad?

b) Suppose that the probability of the opposition being of a high type is 1/2. Voters vote for the government with the highest probability of being of a high type. What is the probability that the incumbent government will win an election against the opposition if the economy is good? What is the probability the incumbent government will win if the economy is bad?

Posted Date: 2/23/2013 8:22:44 AM | Location : United States







Related Discussions:- Economic outcomes, Assignment Help, Ask Question on Economic outcomes, Get Answer, Expert's Help, Economic outcomes Discussions

Write discussion on Economic outcomes
Your posts are moderated
Related Questions
Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

explain how under the WTO differential treatment in reverse is different from the special and differential treatment

Question: (a) What is the difference between a News Conference and a News Release? (b) An Organising Committee has been set up to celebrate the Chinese Spring Festival on S

This variant of coordination problem seeks the answer to why some countries fail to grow when public and private rent seeking makes property rights insecure. One reason is that re

Your organisation has tasked your to reduce the rate of a particular type of incident or particular type of high risk hazards which is commonly occurring. Your task requires you to

Consider a case, if an insurance company merges with a bank. We know that insurance company bears risk for insurers. Suppose, after merger, bank gets in some trouble for reasons ot

A change in the legal statute may be able to force an equilibrium if it leads to a new equilibrium which implies some revised belief which sustains the equilibrium. Tirole (1996)

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

explain the stages and various coordination mechanisms involved in policy process?

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4