Microeconomics: private and public choice, ch 6

These factors weaken the case for market sector allocation:

1. Lack of competition 2. externalities 3. public goods 4. poor information

These factors weaken the case for public sector action:

1. special interest issue 2. shortsightedness effect 3. Rent seeking 4. Weak incentives for operational efficiency

Porkbarrel legislation

A package of spending projects benefiting local areas financed through the federal government.

Crony capitalism

A situation where the institutions of markets are maintained, but the allocation of resources, and the profit and loss businesses, are determined by political decision-making rather than consumer purchases and market forces.

Rent seeking

Actions by individuals and groups designed to restructure public-policy in a manner that will either directly or indirectly redistribute more income to themselves or the projects they promote.

Special interest issue

An issue that generates substantial individual benefits to a small minority while imposing a small individual cost on many other citizens.

Rational ignorance effect

Because it is highly unlikely that an individual vote will decide the outcome of an election, a rational individual has little or no incentive to search for and acquire the information needed to cast an informed vote.

Representative democracy

Government is controlled by voters who elect politicians to set policy and higher bureaucrats to run government agencies.

Public-sector action is based on __________.

Majority rule

Shortsightedness effect

Misallocation of resources that results because public-sector action is biased in favor of proposals yielding clearly defined current benefits in exchange for difficult to identify future costs and against proposals with clearly identifiable current costs that yield less concrete and less obvious future benefits.

Private sector action is based on __________.

Mutual agreement

User charges

Payments consumers are required to make if they want to receive certain services provided by the government.

Transfer payments

Payments to individuals or institutions that are not linked to the current supply of a good or service by the recipient

Earmarking

The direction of budgeted funds to specific projects, programs, and locations.

Logrolling

The exchange between politicians of political support on one issue for political support on another.

Public choice analysis

The study of decision-making as it affects the formation and operation of collective organizations, like governments.