Economics of the Public Sector Information
Public economics (or economics of the public sector) is the study of government policy through the lens of economics efficiency and equity. At its most basic level, public economics provides a framework for thinking about whether or not the government should participate in economics markets and to what extent its role should be. In order to do so, microeconomic theory is utilized to assess whether the private market is likely to provide efficient outcomes in the absence of governmental interference. Inherently, this study involves the analysis of government taxation and expenditures. This subject encompasses a host of topics including market failures, externalities, and the creation and implementation of government policy. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare.
Broad methods and topics include:
- analysis and design of public policy[1]
- public-finance theory and its application
- distributional effects of taxation and government expenditures
- analysis of market failure and government failure.[2]
Emphasis is on analytical and scientific methods and normative-ethical analysis, as distinguished from ideology. Examples of topics covered are tax incidence, optimal taxation, and the theory of public goods.[3]
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Markets and governments efficiency and failure
Main articles: Market failure and Government failureNatural monopoly
Main article: Natural monopolyInformation asymmetry
Main article: Information asymmetry- "As Bruce Greenwald and I have shown, whenever information is imperfect - that is, always - markets are inefficient; hence the need for government action."[4]
Public good
Main article: Public goodA public good has the feature that the marginal cost of an additional individual enjoying it is zero. Examples include an army, street lighting, radio signals or information. If there is an army defending one person in a country, a street lamp for one person, a radio signal for one person, then it is with no extra cost that two or more people use the service. For information, whose character as a public good was emphasised by Joseph Stiglitz, an old aphorism of philosopher Bertrand Russell holds true,
"If I have one apple and you have one apple and we exchange apples, we both have one apple. But if you have an idea and I have an idea and we exchange ideas, then we both have two."
The problem of the public good is that if people can use the good or service at the same time and cannot be excluded from its use (which with a cost they sometimes can, e.g. encoding a Wifi signal with a password) then people can "free-ride" on its use. Consumers will not be contributing to the costs of production. Because producers cannot recoup enough expenses, there will be an underproduction of public goods. There is therefore a role for state intervention. The government through taxation can get all people to contribute.[5]
Externality
Main article: Externality- Ronald Coase, "The Problem of Social Cost", 1960. Journal of Law and Economics
Incomplete markets
Main article: Incomplete markets- George Akerlof, "The Market for Lemons", 1970.
Macroeconomic instability
Main articles: Unemployment, inflation, and disequilibriumPublic expenditure
Public goods
Main article: Public goods- Characteristics
Public goods are [non-excludable] and [non-rivaled]. Something is non-excludable if its use is cannot be limited to a certain group of people. For example, since one cannot prevent people from viewing a firework display it is non-excludable. Something is non-rivaled if one person's consumption of it does not deprive another person, again (to a point) a firework display is non-rivaled - since one person watching a firework display does not prevent another person from doing so.
- The demand for pure public goods
- Efficient output of a pure public good
- The free rider problem
Public choice and the political process
Main article: Public choiceExternalities and government policy
Main article: Externalities- Internalization of externalities
- The Coase Theorem. The Coase theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.
- Pigouvian tax
Particular sectors
Main article: Public servicesHealth care
Main article: Health careDefence and technology
Main article: Defence industrySocial insurance
Main article: Social securityWelfare programs and the redistribution of income
Main articles: Unemployment benefits and Labour economicsEducation
Main article: EducationRegulated markets
Main article: Regulatory economicsEmergency and local services
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Public finance and taxation
Main articles: Public finance and TaxationFurther Reading
- Arrow, Kenneth J. Social Choice and Individual Values. (1970)
- Atkinson, Anthony B. "On the Measurement of Inequality" Journal of Economic Theory 2 (1970) 244-263 [1]
- Buchanan, James M. and Gordon Tullock. The Calculus of Consent: Logical Foundations of Constitutional Democracy. (2010) [2]
- Dalton, Hugh. "The Measurement of Inequality of Incomes" The Economics Journal Vol. 30, No. 119 (Sep. 1920) 348-361
- Dupuit, Jules. "On the Measurement of the Utility of Public Works" in Readings in Welfare Economics, ed. Kenneth J. Arrow and Tibor Scitovsky (1969)
- Edgeworth, F.Y. "The Pure Theory of Taxation" The Economic Journal Vol. 7 No. 25 (Mar. 1897) 46-70 [3]
- Lihndahl, Erik. "Just Taxation: A Positive Solution" in Classics in the Theory of Public Finance, ed. R.A. Musgrave and A.T. Peacock (1958) [4]
- Musgrave, Richard A. "A Multiple Theory of Budget Determination" (1957) [5]
- Niskanen, William A. "The Peculiar Economics of Bureaucracy" The American Economic Review Vol. 58, No. 2 (May 1968) 293-305 [6]
- Niskanen, William A. Bureaucracy and Representative Government. (2007)
- Pigou, A.C. "Divergences Between Marginal Social Net Product and Marginal Private Net Product" in The Economics of Welfare, A.C. Pigou (1932) [7]
- Ramsey, Frank P. "A Contribution to the Theory of Taxation" in Classics in the Theory of Public Finance, ed. R.A. Musgrave and A.T. Peacock (1958)
- Samuelson, Paul. "The Pure Theory of Public Expenditure" Review of Economics and Statistics, XXXVI (1954), 387-89 [8]
- Schultz, George P. and Kenneth W. Dam. Economic Policy Beyond the Headlines (1998)
- Tiebout, Charles M. "A Pure Theory of Local Expenditure" The Journal of Political Economy Vol. 64, No. 5 (Oct. 1956), 416-424 [9]
- Von Mises, Ludwig. Bureaucracy (2007) [10]
- Wicksell, Knut. "A New Principle of Just Taxation" in Classics in the Theory of Public Finance, ed. R.A. Musgrave and A.T. Peacock (1958)
See also
Notes
- ^ • B. Douglas Bernheim and Antonio Rangel, 2008. "behavioural public economics," The New Palgrave Dictionary of Economics, 2nd Edition Abstract. • Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, 34(1), pp. 9–41 (press +).
- ^ • Mrinal Datta-Chaudhuri, 1990. "Market Failure and Government Failure." Journal of Economic Perspectives, 4(3) , pp. 25-39 (press +). • Kenneth J. Arrow, 1969. "The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocations," in Analysis and Evaluation of Public Expenditures: The PPP System. Washington, D.C., Joint Economic Committee of Congress. PDF reprint as pp. 1-16 (press +). • Joseph E. Stiglitz, 2009. "Regulation and Failure," in David Moss and John Cisternino (eds.), New Perspectives on Regulation, ch. 1, pp. 11-23. Cambridge: The Tobin Project.
- ^ • Serge-Christophe Kolm, 1987. "public economics," The New Palgrave: A Dictionary of Economics, v. 3, pp. 1047-48. • Anthony B. Atkinson and Joseph E. Stiglitz, 1980. Lectures in Public Economics, McGraw-Hill, pp. vii-xi.
- ^ Joseph Stiglitz, 'John Kenneth Galbraith understood capitalism as lived - not as theorized' (28.12.2008) Christian Science Monitor
- ^ • Mancur Olson, 1971. The Logic of Collective Action: Public Goods and the Theory of Groups, Harvard University Press, 2nd ed. Description and chapter-preview links, pp. ix-x. • James M. Buchanan, 1968. The Demand and Supply of Public Goods. Rand McNally. Chapter links.
References
- Atkinson, Anthony B., and Joseph E. Stiglitz, 1980. Lectures in Public Economics, McGraw-Hill
- Auerbach, Alan J., and Martin S. Feldstein, ed. Handbook of Public Economics. Elsevier.
- 1985, v. 1. Description and preview.
- 1987, v. 2. Description.
- 2002. v. 3. Description.
- 2007. v. 4. Description.
- Barr, Nicholas, 2004. Economics of the Welfare State, 4th ed., Oxford University Press.
- Haveman, Robert 1976. The Economics of the Public Sector.
- Kolm, Serge-Christophe, 1987. "public economics," The New Palgrave: A Dictionary of Economics, v. 3, pp. 1047–55.
- Feldstein, Martin S., and Robert P. Inman, ed., 1977. The Economics of Public Services. Palgrave Macmillan.
- Musgrave, Richard A., 1959. The Theory of Public Finance: A Study in Public Economy. J.M. Buchanan review, 1st page.
- Laffont, Jean-Jacques, 1988. Fundamentals of Public Economics, MIT Press. Description.
- Myles, Gareth D., 1995. Public Economics, Cambridge. Description and scroll to chapter-preview links.
- Olson, Mancur, 1971, 2nd ed.The Logic of Collective Action: Public Goods and the Theory of Groups, Harvard University Press, Description and chapter-previews links, pp. ix-x.
- Stigler, George J. and Paul A. Samuelson, 1963. "A Dialogue on the Proper Economic Role of the State." Selected Papers, No.7. Chicago: University of Chicago Graduate School of Business.
- Starrett, David A., 1988. Foundations of Public Economics, Cambridge. Description. Scroll to chapter-preview links.
- Stiglitz, Joseph E., 1994. 'Rethinking the Economic Role of the State: Publicly Provided Private Goods' Unpublished.
- _____, 1998. "The Role of Government in the Contemporary World," in Vito Tanzi and Ke-Young Chu , Income Distribution and High-Quality Growth, pp. 211-54.
- _____, 2000. Economics of the Public Sector, 3rd ed., Norton.
- Tinbergen, Jan, 1958. On the Theory of Economic Policy.
External links
Categories: Socioeconomics | Public economics
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