310Week 3.pptx - UNIVERSITY OF PRETORIA Economics 310...

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1UNIVERSITY OF PRETORIAEconomics 310Chapter 5
Public Economics – Black et al. Ch 5Equity and social welfarePreviously (Chapter 3&4)-Describing and addressing market failuresNow: Chapter 5 – market failures concerning distribution of wealth or income in a society.Tools for assessing welfare effects of public policy:-Pareto criterion: policy-induced change only justified if improving the welfare of at least one member of society without harming others.-Bergson criterion: welfare might be improved through policy-induced change even where an individual is left worse off, provided that overall societal welfare improves.2
Public Economics – Black et al. Ch 5Equity and social welfareNozick’s entitlement theory-Pareto – criterion: libertarian approach to public policy.-Libertarian view usually defined i.t.o. maximisation of “negative freedom” I.e. protection of individual’s right not to be coerced by others.-Role of govt. according to this approach: protecting individual freedom.-In principle opposed to distributional policies infringing on freedom of individuals.-Exception to libertarian rule on distributional policies: Nozick’s entitlement theory.3
Public Economics – Black et al. Ch 5Equity and social welfareNozick’s entitlement theory-Principles of justice:-Justice in acquisition: individuals only allowed to acquire things not belonging to others and not allowed to make others worse off than before the acquisition. Things: only property and capital goods.-Justice in transfer: individuals only allowed to transfer material things on a voluntary basis, eg. Gifts, grants, bequests and voluntary exchange.

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