Government Failure. SPHA511, John Ries. Overview. Government might intervene to address to market failures or equity concerns. These actions constitute normative explanations for government involvement in the economy.
SPHA511, John Ries
We will consider three types of government failure in this lecture:
Two forms of democratic decision-making
Shouldn’t a direct democracy be superior to a representative democracy? Not necessarily:
Campaign platforms in two-party systems will gravitate towards the centre.
Voting can get complicated when there are more than
Two choices: Agenda manipulation with pairwise
Lesson: While voting seems like a "fair" process, different voting schemes can yield different outcomes. We would like a scheme that allows all votes to count. Even if the voting system is fair, however, the process may be too expensive and voters may not have the expertise to make proper judgements.
Definition: special interest groups are small coalitions advocating a specific policy or viewpoint to elected delegates.
2. Two types:
(1) economic interest groups: primarily concerned with promoting own self interest
(2) social interest groups: promoting particular moral or social values
"Rent" defined: economic rent (profit) is the income earned by the owner of a resource unit, over and above normal returns (i.e., the minimum amount required to induce a factor of production into employment in a given activity).
Brander: "Rent-seeking is the process of using resources to redistribute wealth from others, rather than create new wealth"
Three consequences of rent-seeking
Why do they arise?
Negative view: they exist for rent-seeking purposes
What is lobbying?
Lobbying occurs when an individual is paid to communicate with a public-office holder in an attempt to influence government policy
There are three categories of lobbyist
Principles of Act
Government Departments and Agencies in Active Registrations for: 2007/08/31
In 2003, the Liberal government passed legislation reduce private campaign donations. Key points:
Objectives of bureaucracies
Role of the ethics commissioner
Suzanne , Amanda
Residency Program Addresses Drug Company Influence
Best outcome is (honest, honest) but incentive for each firm to cheat (a prisoner’s dilemma). In this case an industry will want to self regulate
and support the honest behaviour.
In this case, the equilibrium is (deceptive, deceptive). The difference is the
High benefit of deception. Why? Either consumers are fooled or perhaps
the products/services are essential and there are no close substitutes.
These industries should by regulated by government
Positive theory of government includes analysis of why policies exist that are not in the aggregate public interest. We investigated three sources of “bad” government policies.