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a) According to selectoratetheory, what is the selectorate? What is the winning coalition?

Now suppose nation A has RA resources in its treasury and nation B has RB resources. The winning coalition in each nation is WA and WB respectively. Leaders want to survive in office and in order to do so they maximize the benefits of their coalition members. Absent any aid transfers, in order to keep their coalition members as happy as possible, the leaders of each nation give each member of the coalition an equal share of the available resources.

b) How much does each coalition member receive in each country?

Now suppose the citizens of nation A do not like country B’s policy of religious intolerance. If nation B ends its policy of intolerance, then the all the citizens in nation A would receive benefits worth qA—this means that a policy of tolerance in country B is considered a public good in country A. However, the citizens in nation B used to like the policy of in tolerance and therefore, by giving it up, each citizen experiences a loss of benefits worth qB.
Consider aid-for-favors. Suppose nation A offers nation B resourcesif it changes its policy of fintolerance.

c) If the exchange of aid for favors takes place, what is the new payoff for members of coalitions in countries A and B?

d) Under what conditions does a member of the winning coalition in country A support the aid-for-favors policy? Under what conditions does a member of the winning coalition in country B support the aid-for-favors policy?

e) Consider the welfare of those outside the winning coalition in each nation and describe whether the aid-for-favors deal makes them better or worse off.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91054

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