Chapter+9 - Chapt er 9 Polit ical Economy Political Economy...

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Chapter 9 Political Economy
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Political Economy 9.5 Conclusion 9.3 Representative Democracy 9.2 Mechanisms for Aggregating Individual Preferences 9.1 Unanimous Consent on Public Goods Levels In the case of direct democracy , voters directly cast ballots in favor of or in opposition to particular public projects. The second case is that of representative democracy , whereby voters elect representatives, who in turn make decisions on public projects. Government failure is the inability or unwillingness of governments to appropriately address market failures. Chapter 9 9.4 Public Choice Theory: The Foundations of Government Failure
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Unanimous Consent on Public Goods Levels Lindahl pricing : An approach to financing public goods in which individuals honestly reveal their willingness to pay and the government charges them that amount to finance the public good .
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Unanimous Consent on Public Goods Levels marginal willingness to pay : The amount that individuals are willing to pay for the next unit of a good. Lindahl Pricing Lindahl Pricing has the following steps: 1. The government announces a set of tax prices for the public good. 2. Each individual announces how much of the public good he or she wants at those tax prices. 3. The government repeats these steps to construct a marginal willingness to pay schedule for each individual. 4. The government adds up individual willingnesses to pay at each quantity of public good provided. 5. The government relates this overall demand curve to the marginal cost curve. 6. The government then finances this public good by charging individuals their willingnesses to pay for that quantity.
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Unanimous Consent on Public Goods Levels Lindahl Pricing
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Unanimous Consent on Public Goods Levels Lindahl Pricing
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Unanimous Consent on Public Goods Levels
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Unanimous Consent on Public Goods Levels Problems with Lindahl Pricing The first problem is that individuals have an incentive to lie about their willingness to pay, since the amount of money they pay to finance the public good is tied to their stated willingness to pay. Preference Revelation Problem Preference Knowledge Problem Even if individuals are willing to be honest about their valuation of a public good, they may have no idea of what that valuation actually is. Preference Aggregation Problem Even if individuals are willing to be honest and even if they know their valuation of the public good, there is a final problem: How can the government aggregate individual values into a social value?
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Mechanisms for Aggregating Individual Preferences
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This note was uploaded on 04/13/2010 for the course ECON 330 taught by Professor Minetti during the Fall '08 term at Michigan State University.

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Chapter+9 - Chapt er 9 Polit ical Economy Political Economy...

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