rosen2_sample_chap04[1]

rosen2_sample_chap04[1] - PA R T T W O A Framework for the...

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PART TWO A Framework for the Analysis of Public Expenditure arket outcomes need be neither efficient nor fair. This part examines how various “market failures” can be remedied by government interven- tion. We discuss both the normative question of how the government ought to solve a particular problem and the positive question of how government actu- ally changes the status quo. Chapters 2 and 3 focused our attention on market failure and economic justice as reasons for consid- ering government intervention. The chapters in this part examine these issues in greater detail and pro- vide the conceptual framework for analyzing the expenditure areas examined in Part 4. Chapter 4 examines public goods. Chapter 5 deals with exter- nalities, with special emphasis on environmental issues. Chapter 6 is devoted to income redistribu- tion. Chapter 7 covers cost-benefit analysis. M
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52 Part Two: A Framework for the Analysis of Public Expenditure Public Goods There exists an intrinsic connection between the common good on the one hand and the structure and function of public authority on the other. The moral order, which needs public authority in order to pro- mote the common good in human society, requires also that the authority be effective in attaining that end. —Pope John XXIII W hich goods and services should the public sector provide, and in what amounts? As the annual debate over the federal budget demonstrates, this question lies at the heart of some of the most important controversies in public policy. In this chapter, we discuss the con- ditions under which public provision of commodities is appropriate. Special attention is devoted to understanding why markets may fail to provide particular goods at Pareto efficient levels. PUBLIC GOODS DEFINED What’s the difference between national defence and pizza? The question seems silly, but think- ing about it leads to a useful framework for determining whether public or private provision of various commodities makes sense. To begin, one big difference between the two com- modities is that two people cannot consume a pizza simultaneously—if I eat a piece, you can’t. In contrast, your consumption of the protective services provided by the army does nothing to diminish my consumption of the same services. A second major difference arises because I can easily exclude you from consuming my pizza, but excluding you from the benefits of national defence is all but impossible. (It’s hard to imagine a situation in which a foreign army is allowed to over-run your home but not mine.) National defence is an example of a pure public good , defined as follows: • Once it is provided, the additional resource cost of another person consuming the good is zero—consumption is nonrival .
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This note was uploaded on 12/10/2010 for the course ECONOMICS 432 taught by Professor Jannett during the Spring '10 term at Brown.

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rosen2_sample_chap04[1] - PA R T T W O A Framework for the...

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