Chapter 16: Public Choices, Public Goods, and Healthcare
How we get societal equilibrium:
1. Public Provision 2. Subsidy 3. Voucher
4 groups of decision makers:
1. Voters 2. Firms 3. Politicians- we elect to carry out our bidding 4. Bureaucrats- works in office but wasn't elected
4 advantages to vouchers:
1. can be used for public or private provision; creates competition 2. Governments set the value and total size of voucher programs which can avoid bureaucratic padding and over provision 3. The public contribution is spread thinly across many participants; little inventive for participants to engage in rent seeking 4. Final consumer has buyer power; forcing firms to compete by offering better service
External benefit
a benefit that someone other than the consumer receives
Private benefit
a benefit that the consumer of a good or service receive
Public choices
a decision that has consequences for many people and perhaps the entire society
Private choices
a decision that has consequences only for the person making it
Pure Public Good
a good that is a non-rival and non-excludable in consumption, which is a good that enters into each agents utility function in the same quantity; do NOT need to be valued equally
Subsidy
a payment that the government makes to private producers (Reverse Tax) -pushes supply curve right so that we now have the equilibrium at the desired quantity
Voucher
a token that the government provides to households which they can use to buy specified goods or services
Marginal Private Benefit
benefit from an additional unit of a good or service that the consumer of the good or service receives Ex: flu shot benefits you
Underproduction
can result if bureaucrats pad their budgets and have wasteful spending- shortage
Overproduction
can result if bureaucrats seek to maximize their budget and programs- surplus
Government intervention leads to...
deadweight loss
Non-excludable good or service
if everyone benefits from it regardless of whether or not they pay for it
Rival good, service, or resource
if its use by one person decreases the quantity available for someone else
Non-rival good, service, or resource
if its use by one person does not decrease the quantity available for someone else
Excludable good or service
if only the people who pay for it are able to enjoy its benefits
Common Resource
is rival and non-excludable Ex: fish in the ocean- anyone can fish, more fish caught less quantity available
Private Subsidies
might overcome some of the problems associated with bureaucracies, but the subsidy budget ultimately depends on bureaucracies
Government failure
occurs when government action leads to inefficiency, which could be under-provision or over-provision of resources to a given activity
Free Rider
problem is the absence of an incentive for people to pay for what they consumer
Principle of Minimum Differentiation
tendency for competitors to make themselves similar in order to appeal to the maximum number of customers or voters
Tragedy of the commons
the absence of incentives to prevent the overuse and depletion of a resource
Marginal External Benefit
the benefit from consuming one more unit of a good or service that people other than the consumer enjoy Ex: flu shot benefits others by you not sharing sickness
Political Equilibrium
the choices of all four groups are compatible and no group can see a way of improving its position by making a different choice; efficiency in the use of resources is possible but not guaranteed
Rational Ignorance
the decision not to acquire information because of the cost of doing so exceeds the expected benefit
Marginal Social Benefit
the marginal benefit enjoyed by the entire society MSB= Marginal Private Benefit + Marginal External Benefit
Public Provision
when a public authority receives payment from the government to produce a good/service Ex: public universities