econ434notes35b - Theorem would have the company pay other...

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Government Provision or Regulation or Antitrust may improve efficiency when… 1. Creating/managing Public Goods (ex. Courts, defense, police) 2. Transactions Costs are very high. 3. Informational problems/asymmetric information 4. Positive or Negative Externalities Pareto efficient solutions can be a result of the Coase Theorem that states that externalities are not a reason for government intervention. Externalities can be eliminated by negotiation between the parties that are helped or hurt. For example, the Coase Theorem applied to pollution would have more efficient outcomes. The example of a company locating to LA was mentioned. If LA doesn’t want anymore pollution and the company will produce pollution, then LA could simply stop the company from moving to there. However, there are inefficiencies associated with that because the city wants economic development and the company wants to relocate to LA and neither preference is satisfied. A (Pareto efficient) solution to the problem as proposed by the Cose
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Unformatted text preview: Theorem would have the company pay other companies in the area to reduce their pollution or buy a company in the area that is polluting and shut it down. Both parties get benefits from the outcome. Richard Musgrave – the three budget system 1. Allocative budget – Benefit principle of taxation, pay in proportion to the benefits that you receive. Ex. Gasoline tax, people must pay the Coast Guard if they are rescued, (sum of total revenue from the payments = sum to total spending) 2. Distributive – The distribution of benefits goes to those who use the things that taxes pay for so that no person is receiving extra welfare more than others. Sum of taxes = sum of welfare 3. Stabilizing – Run a balanced budget, except in times of recession. Definition of welfare Your benefits Your taxes----------------------is greater than --------------------Sum of benefits Sum of taxes...
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