Question

5. Distribution of benefits and costs

The Parliament, the legislature of the fictional country of Verben, is considering legislation that will generate benefits of $20 million and costs of $26 million. For perspective, Verben's population is 40 million.

Passing the legislation is (effecient,ineffecient) , and if everyone in Verben shared equally in both its benefits and its costs, the Parliament will vote (against, for)   the legislation.

If the benefits of the legislation are concentrated among a few people instead of widespread among the population, those people will be willing to spend up to ($20 million, 6 mllion, 26 million, 46 million, 0 million) lobbying the Parliament for the legislation. (Note: Assume that the costs are widespread; therefore, you can ignore them in the calculations of the few who experience the benefits.)

The less widely spread are the costs of the legislation, the (lower, higher) is the likelihood of lobbying against the legislation by those who will incur its costs.

Suppose that, as before, the benefits of the legislation are concentrated among a small group, the costs are very widespread, and the Parliament is responsive to lobbying. The likely amount spent on lobbying against the legislation is ($26 million, $46 million, $0 million, $6 million, $20 million) , in which case the Parliament will likely vote (for,against) the legislation.

Answer 1

1) Passing the legislation is inefficient. [ because total benefit less than total cost]

2) Tha parliament will vote against the legislation. [because the legislation is bad for all and no one wants it]

3) .. will be willing to spend up to $20 million. [ anything above 20million will result in loss for the benefitting people. Any amunt upto 20 million will result in profit for them. So they will go upto 20 million and not above that]

4) The less widely spread are the costs of the legislation, the higher is the likelihood of lobbying against the legislation by those who will incur its costs. [if the cost are less widely spread , that is more concentrated, people will be impacted more and there are chances they will come together and lobby against legislation]

5) The likely amount spent on lobbying against the legislation is $0 million , in which case the Parliament will likely vote  for the legislation. [Althought the total costs are huge, individuals may not be affected as the cost is spread widely and it is unlikely the cost bearers wil come together to lobby against legislation. Hence the parliament will vote for the legislation]