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Traditional Public Econ
- What is econ rationale for govt. intervention Equity public expenditure. Market failure 2.Can These alternatives increase efficiency? Equity 3. Efficient and equitable way to pay #2 Tax 4. Is the political process going to lead to #2, and #3 public choice. govt fails TERM 2
Net fiscal incidence of
govt
DEFINITION 2 What you get from govt from what you pay mkt works when there is a preto-efficiency all mutual benefits have been exhausted. All allocation of resources have been used equality TERM 3
First Fundamental thm. welfare
economics
DEFINITION 3 Desire ability of alternative states. if all markets are perfect comparative if no missing mkt then comparative equality is predo-efficiency in the mkt. To fix promote free entry. or price floor TERM 4
Missing Markets
DEFINITION 4 Externalities and information asymmetric for public goods aysmtic info can destroy a market TERM 5
MKTS
DEFINITION 5 1.property rights 2.working for wages well established 3.Market 4.Free exit and free entry
Sources of mkt failures
1.externalites-altruism is a public good 2.public goods-a good for which my utility depends on the total amount provided 3.information aysmetries 4.imperfect competition TERM 7
The goods
DEFINITION 7 Public goods: non-rivial, non-excludable Private goods:rival, excludable Impure good TERM 8
Sources of Govt failure
DEFINITION 8 1.short sightedness 2.inflexibility 3.diff govt agencies have conflicting goals 4. interest groups distorts political process 5/elected officials and govt agencies have their own self- interest 6.ignorant and stupid voters TERM 9
Coase Them
DEFINITION 9
- bargain cost are low 2.exclusion feasible 3. property rights well defined. Market acting alone achieve efficiency. then private actions of buyers and sellers achieve eff. may work for legislator and lobbies Club Thm: individual gets together makes a club to get benefits TERM 10
Function of Govt
DEFINITION 10 1.protection of property and other rights:national defense. 2.govt production of goods and services 3.govt regulation of private transactions 4.Redistribution:min standard living 5. Stabilization
tit for tat
if other person defects you will do it next time. dont need govt to intervene to max utility. TERM 17
Demand for Public sector goods and services
DEFINITION 17 indiv. pref of voter-> political process-> demand for public sector goods and services. majority voting -> political process TERM 18
Median Voter model
DEFINITION 18
- preferences for indiv. voters can be aligned on a continuum (single issue) 2.single-peaked preferences: you would perf. alt that are closer to you alt. 3. all voters vote 4. all voters vote their pref. 5. odd #of voters...Dmedian/Ni=1D- (tax price{median}/ MC)=efficient TERM 19
Rational ignorance
DEFINITION 19 rational for voters to be ignorant of public issues. Cost of being informed is greater than benefit of being informed for vote. Special interest have high incentive to be informed b/c benefits are high TERM 20
Systematic Bias of voters
DEFINITION 20
- Anti-Market bias: every time someone gets money, it is a transfer; ignores price and profit incentives 2. Anti-Foreign bias: trade w/china is bad, should also believe trade w/states is bad, goes up make work bias also anti-immigration 3. Market-work bias: saving labor is bad ex. cutting grass w/riding mower saves jobs 4. Pessimistic Bias: People are better off now
Log rolling
vote for my program and i will vote for yours but you dont agree with it. but if you didnt do this neither program would pass. TERM 22
Rents
DEFINITION 22 are any excess payments to suppliers about that which would occur in a competitive market TERM 23
Public sector suppliers
DEFINITION 23 agency/Burea= govt office economic agents -objective - constraints market value agency output >,=,< cost of the agency TERM 24
Demand side
DEFINITION 24 median voter, special interest, elected offices, all voters TERM 25
Supply side
DEFINITION 25 Agencies, elected offices
