IBE316-4 - IBE 316 Economic Policy Stiglitz Economics of...

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IBE 316 Economic PolicyStiglitz: Economics of the Public SectorChapter 4: Market FailureKeisuke OTSUSophia University FLASpring 2008OTSU(Sophia University FLA)IBE 316Spring 20081 / 18
OverviewOverviewChapter 3 saysin a perfect world, market economy leads to Pareto e¢ ciencyChapter 4 explains how and why the government intervenes in the marketwhen the market fails to produce goods e¢ cientlyeven when they are e¢ cientOTSU(Sophia University FLA)IBE 316Spring 20082 / 18
OverviewFocus Questions1What are the principal reasons why market fail to produce e¢ cientoutcomes?2What role does government play in making it possible for markets towork at all?3Why might the government intervene in the market°s allocation ofresources, even when it is Pareto e¢ cient? What are merit goods?What is the government role in redistribution?4What is the "market failure" approach to the role of government?What are alternative perspectives in thinking about the role ofgovernment?OTSU(Sophia University FLA)IBE 316Spring 20083 / 18
Property Rights and Contract EnforcementEven for markets to work, there needs to be a government to de±neproperty rights and enforce contractsProperty rights: the right to posses and exchange an assetincludes intellectual property rightswithout property rights, incentives to save and invest are weakerContract enforcement: to force people to honor contractswithout contract enforcement, no trade or ±nance will existthe level of enforcement is di/erent across countriesOTSU(Sophia University FLA)IBE 316Spring 20084 / 18
Property Rights and Contract Enforcement

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