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slides16 - Externalities Public Goods Common Resources...

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Unformatted text preview: Externalities Public Goods Common Resources Interventions in Health Market Failure and Government Intervention Angela Fertig Spring 2010 Angela Fertig Market Failure and Government Intervention Externalities Public Goods Common Resources Interventions in Health Why intervene? Economists generally believe in the invisible hand: the market and competition are the best ways to allocate resources. In fact, redistributing income can be very bad for the economy. Okuns Leaky Bucket I taxing the rich reduces their incentive to be productive, creative I giving money to poor reduces their incentive to work I redistributing slices of the pie shrink the pie I or are like a leaky bucket Angela Fertig Market Failure and Government Intervention Externalities Public Goods Common Resources Interventions in Health Why intervene? However, there are reasons for govt intervention. We wont discuss monopoly power today, but other important reasons include: I Externalities I Public goods I Common resources Angela Fertig Market Failure and Government Intervention Externalities Public Goods Common Resources Interventions in Health Externalities I Defn : an externality is the uncompensated impact of one persons actions on the well-being of a bystander I Positive (research) or Negative (pollution, contagious disease) Angela Fertig Market Failure and Government Intervention Externalities Public Goods Common Resources Interventions in Health Graphing externalities negative positive Production Consumption Angela Fertig Market Failure and Government Intervention Externalities Public Goods Common Resources Interventions in Health Solution 1 Coase Theorem : if private parties can bargain without cost, they can solve the problem of externalities on their own doesnt usually work b/c: I there are transaction costs I parties cant agree I there are many parties to organize Angela Fertig Market Failure and Government Intervention Externalities...
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slides16 - Externalities Public Goods Common Resources...

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