Question

Consider a specific example of the special-interest effect and the collective- action problem. In \(2012,\) it was estimated that the total value of all corn production subsidies in the United States was about $$\$ 3$$ billion. The population of the United States was approximately 300 million people that year. \(L 05.2\) a. On average, how much did corn subsidies cost per person in the United States in \(2012 ?\) (Hint: A billion is a 1 followed by nine zeros, A million is a 1 followed by six zeros.) b. If each person in the United States is only willing to spend $$\$ 0.50$$ to support efforts to overturn the corn subsidy, and if antisubsidy advocates can only raise funds from 10 percent of the population, how much money will they be able to raise for their lobbying efforts? c. If the recipients of corn subsidies donate just 1 percent of the total amount that they receive in subsidies, how much could they raise to support lobbying efforts to continue the corn subsidy? d. By how many dollars does the amount raised by the recipients of the corn subsidy exceed the amount raised by the opponents of the corn subsidy?

Short answer

The corn subsidy cost is $10 per person. Opponents raise $15 million, while subsidy recipients raise $30 million, exceeding by $15 million.

Step-by-step solution

Calculate Cost Per Person

To find the cost of corn subsidies per person, divide the total subsidy amount by the population. The subsidy amount is \( \\(3 \text{ billion} = 3 \times 10^9 \). The population is \(300 \text{ million} = 3 \times 10^8\). Thus, the cost per person is \( \frac{3 \times 10^9}{3 \times 10^8} = \\)10 \).

Calculate Total Raised by Opponents

Opponents can raise money from 10% of the population, which is \(0.1 \times 300 \text{ million} = 30 \text{ million}\) people. Each person is willing to spend \(\\(0.50\). Therefore, the total raised is \(30 \text{ million} \times \\)0.50 = \$15 \text{ million} \).

Calculate Total Raised by Subsidy Recipients

Recipients of the corn subsidy raise 1% of their total subsidies. Therefore, they raise \(1\% \times 3 \text{ billion} = 0.01 \times 3 \times 10^9 = \$30 \text{ million} \).

Determine the Difference in Funds Raised

Subtract the amount raised by opponents from the amount raised by subsidy recipients: \( \\(30 \text{ million} - \\)15 \text{ million} = \$15 \text{ million} \).

Key concepts

The Special-Interest Effect

The special-interest effect is a phenomenon often observed in politics and economics, where a small group with concentrated benefits from a policy can exert more influence than a larger group that pays the cost of the same policy. This effect becomes particularly pronounced when the gain for the special-interest group is significant and the cost is spread thinly across a large population. Individuals in the larger group may not find it worth their effort to lobby against the policy due to the small individual cost they incur.
In the example of corn subsidies, the special-interest group consists of farmers and agricultural businesses receiving subsidies. This group has a strong motivation to invest in lobbying to maintain the subsidies, as they receive a tangible financial benefit. However, the cost of these subsidies, averaging to a mere $10 per person annually in the U.S., is distributed across the entire population. Consequently, the average citizen might not feel compelled to actively lobby against this policy, demonstrating the power of the special-interest effect.

• Motivated groups with significant benefits tend to be more active.
• Larger populations with minimal individual costs often see little incentive to resist.

Understanding Corn Subsidies

Corn subsidies in the United States exemplify the intersection of public policy and agricultural economics. Subsidies are financial support given by the government to corn producers to stabilize prices, ensure a steady supply, and support the income of farmers. While these subsidies can help stabilize the agricultural sector, they often come under scrutiny for distorting market prices and encouraging overproduction.
In 2012, corn subsidies amounted to approximately $3 billion in the U.S. This significant sum is meant to assist a relatively small group within the farming industry, yet the impact extends to the entire population through collective tax responsibility. A collective-action problem arises since taxpayers, as a broad group, face the challenge of organizing collectively to influence policy—a task that is typically hampered by the minimal personal financial burden.

• Subsidies are a form of economic aid targeting specific industries.
• They often spark debates over market fairness and fiscal efficiency.

The Role of Lobbying Efforts

Lobbying plays a crucial role in shaping public policy, especially when dealing with issues like subsidies. It involves various strategies used by interest groups to influence decision-makers in favor of specific policies. In the case of corn subsidies, both supporters and opponents engage in lobbying to advance their interests.
For the recipients of the subsidies, investing in lobbying can be seen as a strategic action to secure continuous financial backing. Even contributing just a small percentage of their gains from subsidies—a calculated expense given the potential rewards—can yield substantial influence.

Conversely, the opponents must pool resources from a vast, often less organized group. In the 2012 example, even if 10% of the population were against the subsidies, their potential to raise funds was significantly less than that of the recipients. This imbalance showcases how lobbying can be a powerful tool for those with concentrated benefits.

• Successful lobbying requires focused efforts from interested parties.
• The disparity in raised funds highlights the systemic challenge faced by widespread opposition.