ECON440PublicFinance

Example9

1. The city of Richmond had been trying to attract a baseball team. However, not everyone is
supportive of this public funding. Assume that the following table gives the preferences/ranking
of funding levels of three citizens.
Funding A B C
Level
No funding 2 3 1
$5 million 1 2 2
$10 million 3 1 3

a) If the city council engages in pair-wise voting, will the project be approved? If so, at what
level of spending?

0 vs $5 million funding $5 million

0 vs. $10 million funding $0 million funding
$5 million vs. $10 million funding $5 million funding

b. Now consider the following preferences.

Funding A B C
Level
No funding 2 1 3
$5 million 3 2 1
$10 million 1 3 2

In this case, will a winner emerge? Plot the preference ranks and use the plot to explain.

0 vs $5 million funding 0 million

0 vs. $10 million funding $10 million funding
$5 million vs. $10 million funding $5 million funding

Pairwise voting of 0 vs. $5 m will result in $0 million winning.

Pairwise voting of 0 vs. $10 million will result in $10 million winning.
In the pair-wise voting, $5 million vs. $10 million, $5 million will be voted.

The ranking of preferences violates the transitivity property.

$0 million > $5 million
$5 million > $10 million
But $0 million < $10 million.

If these preferences are plotted there will be two peaks for A.