holcombe 06
DESCRIPTION
Bahan Kuliah P.Point SDM untuk jurusan EKP Unsyiah dari Prof. Said dan Dr.Eddy. (Coba-coba posting :D)TRANSCRIPT
CHAPTER
6The Economic Role of
the State
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-2
The Economic Role of the The Economic Role of the StateState
Market economy requires that Market economy requires that property rights be well-defined and property rights be well-defined and protectedprotected
Government has 3 possible roles:Government has 3 possible roles: Protection of individual rightsProtection of individual rights Public productionPublic production RegulationRegulation
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-3
Protection of RightsProtection of Rights A market economy presupposes A market economy presupposes
rights are protectedrights are protected Government protects rights through:Government protects rights through:
National defenseNational defense Police Police CourtsCourts
Government has monopoly on Government has monopoly on legitimate use of forcelegitimate use of force
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-4
How Much Protection is How Much Protection is Optimal?Optimal?
Is not an all-or-nothing propositionIs not an all-or-nothing proposition Optimal point is where marginal cost Optimal point is where marginal cost
of protection equals marginal benefit of protection equals marginal benefit from protectionfrom protection
Provides little practical guidanceProvides little practical guidance
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-5
Government ProductionGovernment Production Market inefficiencies lead to Market inefficiencies lead to
possibility of government regulation possibility of government regulation or productionor production
Main theoretical justifications for Main theoretical justifications for government production:government production: ExternalitiesExternalities Public goodsPublic goods
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-6
Government RegulationGovernment Regulation Regulation may be a more efficient Regulation may be a more efficient
substitute for government productionsubstitute for government production Problems with Government Problems with Government
RegulationRegulation InformationInformation PoliticsPolitics
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-7
The Capture Theory of The Capture Theory of RegulationRegulation
Regulatory agencies are “captured” Regulatory agencies are “captured” by regulated industriesby regulated industries
Special interests vs. general publicSpecial interests vs. general public Example:Example: regulated utility regulated utility
General public lacks incentive to General public lacks incentive to become informedbecome informed
Special interests have incentive because Special interests have incentive because of concentrated regulatory benefitsof concentrated regulatory benefits
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-8
The Regulatory Agency The Regulatory Agency as a Cartelas a Cartel
Government regulation can create a Government regulation can create a regulatory cartel creating:regulatory cartel creating: Regulatory barriers to entryRegulatory barriers to entry Regulating prices Regulating prices
Result is inefficientResult is inefficient Lower output = higher pricesLower output = higher prices
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-9
The Regulatory Agency The Regulatory Agency as a Cartelas a Cartel
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-10
The Equilibrium Level of The Equilibrium Level of RegulationRegulation
Special interests don’t get everything Special interests don’t get everything they wantthey want
Regulation benefits some at the Regulation benefits some at the expense of othersexpense of others
Politicians must weigh marginal Politicians must weigh marginal political costs vs. marginal political political costs vs. marginal political gainsgains
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-11
The Equilibrium Level of The Equilibrium Level of RegulationRegulation
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-12
The Transitional Gains The Transitional Gains TrapTrap
Regulation provides transitional Regulation provides transitional profits profits
Profits eventually competed awayProfits eventually competed away Deregulation creates transitional Deregulation creates transitional
losseslosses Example:Example: Airline Regulation Airline Regulation
Increases difficulty of eliminating Increases difficulty of eliminating harmful regulationsharmful regulations
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-13
RedistributionRedistribution Largest single activity undertaken by Largest single activity undertaken by
United States governmentUnited States government Many stated reasons for Many stated reasons for
redistributionredistribution Actual redistribution policies will Actual redistribution policies will
reflect impact of the political processreflect impact of the political process
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-14
Reasons for Government Reasons for Government RedistributionRedistribution
Two general reasons: Provide a safety net Greater equality
Not necessarily the same thing Example: worldwide poverty
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-15
Politics and Politics and RedistributionRedistribution
Bulk of government transfers go to Bulk of government transfers go to the middle class in the United Statesthe middle class in the United States Examples:Examples:
Social SecuritySocial Security farm programsfarm programs
Product of political process based on Product of political process based on majority rulemajority rule
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-16
StabilizationStabilization Government’s other activities may Government’s other activities may
be constrained by stabilization policybe constrained by stabilization policy Stabilization tools:Stabilization tools:
Monetary policyMonetary policy Fiscal policyFiscal policy
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-17
Can The Government Can The Government Perform These Perform These
Functions?Functions? May be problems with government May be problems with government
allocation of resourcesallocation of resources Information problemsInformation problems
Limited market dataLimited market data Unrevealed preferencesUnrevealed preferences
Policy conflictsPolicy conflicts Trade-off between efficiency and equityTrade-off between efficiency and equity
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-18
Will The Government Will The Government Perform These Perform These
Functions?Functions? Public policy is not decided by expertPublic policy is not decided by expert Public policy determined through Public policy determined through
political process influenced by:political process influenced by: Special interestsSpecial interests Public sentimentPublic sentiment
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-19
The Free Rider ProblemThe Free Rider Problem Individuals can consume collective Individuals can consume collective
benefits without payingbenefits without paying Even when individuals do contribute, Even when individuals do contribute,
they have an incentive to shirkthey have an incentive to shirk Shirking reduces the production of the Shirking reduces the production of the
collective goodcollective good Incentive to understate demand for Incentive to understate demand for
collective goodcollective good Example:Example: National defense National defense
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-20
The Holdout ProblemThe Holdout Problem Occurs when one person in a group Occurs when one person in a group
has the power to prevent collective has the power to prevent collective actionaction Example:Example: Highway construction Highway construction
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-21
Solutions To The Holdout Solutions To The Holdout ProblemProblem
Private solutionsPrivate solutions Substitute to alternative locations if Substitute to alternative locations if
possiblepossible Contingency contractsContingency contracts Hiding motivesHiding motives
Public SolutionPublic Solution Eminent DomainEminent Domain
PUBLIC SECTOR ECONOMICS: The Role of Government in the American EconomyRandall Holcombe 6-22
Consent and CoercionConsent and Coercion Certain situations require Certain situations require
government coercion to achieve government coercion to achieve efficiencyefficiency
If everyone is better off because If everyone is better off because everyone is coerced, everyone would everyone is coerced, everyone would agree to be coercedagree to be coerced
Incompatible within Paretian Incompatible within Paretian frameworkframework