rise THE EFFECIENCY OF THE MARKET DEPENDS ON 2 THINGS 1 COMPETITIVE MARKETS AND 2 WELL DEFINED AND ENFORCED PROPERTY RIGHTS CH 6 ECONOMICS OF COLLECTIVE DECISION MAKING SEE ATTACHED PAGE 4 summarych6 I A Differences Similarities between Governments Markets Upon political decisons being made democratically choices of individuals will effect the outcome in govt sector just as the effect the market sector 1 Competitive Behavior is Present both Market and Public Sectors a ex Politicians compete for elective office public as well as Bureau chiefs compete for taxpayer to reach their agency goals market 2 Public Sector organization can break the individual consumption payment link a basically not a 1to1 link of payment and receipt ex someone might pay taxes whole life and not live to see benefit from social security 3 Scarcity Imposes the Aggregate Consumption Payment link in both sectors resources used 4 one purpose by govt have alt uses therefore it is costly to provide goods and services thro govt a 4 Private Sector action is based on mutual agreement Public Sector action based on Majority rule a corporations no matter how strong cannot FORCE you to give them part of your income mutual gain drives this whereas if a majority decides on one policy those who opposed the policy are forced to abide by that 5 When collective decisions are made Legislatively voters must choose among candidates who represent a bundle of positions on issues a in politics cannot choose 1 candidate views on abortion and the other candidates ideas on healthcare makes it hard 4 voter 2 make voice heard on one issue whereas in the market can buy some clothes in one store and pick another store to buy different clothes 6 Income and influence are distributed in the 2 sectors a everyone in market have diff income lvls whereas 1 citizen 1 vote but other ways 2 influence i e donating certain organization or even influencing neighbors B POLITICAL DECISION MAKING OVERVIEW 1 Public Choice Analysis study of decison making effects on the formation and operation of collective organizations i e govts a Voter Incentives have strg incentive to vote for candidate that offers greatest gain to relative to individual costs voters poorly informed due to collective decisions breaking link b w choice of individual and outcome of issue 1 rational ignorance effect basically your one vote isnt going to make the decision so its not worth the effort of finding out information regarding decision b c your vote alone isnt going to swing outcome b Politician Incentives votes are the 1 objective of politicians and money helps get those votes some senators even pay 15M to get re elected c Bureaucrat Incentives more narrowly focused interests BUT require more money in turn more regulations even if not economically efficient spending goes well beyond it d Summary goals of all 3 catergories get more money from govt and get govt do what they want Sometimes form coalitions together across govt bureaucratic voter II When the Political Process Works Well 1 The distribution of the benefits and costs among voters influences how the political process works a user charges is one method to make those who use the resource more than others to pay more than those who use resource seldom 1 ex most states pay for road construction from money made off taxes of gasoline and other motor fuels b Voters pay in PROPORTION to the benefits they recieve from public sector prod projects tend to be approved and those that are counterprod are rejected When the costs of a policy are distributed among voters DIFFERENTLY than benefits democratic decision making tend to be less efficient INSERT EXHIBIT 5 PG 132 1 when distribution of benefits and cost both widespread amg voters type 1 c or both concentrated amg voters type 3 govt will undertake PRODUCTIVE projects and reject UNPRODUCTIVE projects Contrast when benefits are concetrated and costs are widespread type 2 govt biased towards ineff projects Finally benefits are widespread and costs are concentrated type4 politics may reject productive projects a summary if costs AND benefits concentrated prod adopted and unprod reject B When the Political Process Works Poorly 1 Special Interest Effect an example of type 2 projects in which one generates substantial personal benefits for a small of people and the costs are spread widely across bulk of citizens a FEW people benefit a lot but many others lose small amt Losses may benefits a ex sugar cane case study the us sugar price 2 3x those of internatl and those resources could be better used to grown something better suited for the US and purchase via trade the major growers use the lrge profits to help politicians that support their interests 16 M with voters this issue is not considered most dont even know about it HERE POLITICIANS HAVE STR INCENTIVE TO SUPPORT SPECIAL INTEREST GROUPS POLICY USE THE FUNDS VIA THE GROUPS 2 ATTRACT OTHER VOTERS WHOM KNOW NOTHING ABOUT THE SUGAR b Logrolling trading votes exchange support for one usse for support for another to pass desired legislation c Pork Barrel Legislation bundling of unrelated projects benefiting many d e f interests into a single bill logrolling is a trade so they trade votes whereas all the pork is in one barrel all towards one single bill Pork Barrel spending and the power of spec interest groups is often accomplished through earmarking detailed directives written into spending bills that require budgeted funds to be spent in spec locations or specific projects borders on corruption goes to those who pay the most to political figures bridge to nowhere in Alaska prime example INSERT EXHIBIT 6 trade votes via logrolling or even pass a pork barrel legislation tht would pass all 3 RESULT PASS COUNTERPRODUCTIVE LEGISLATION g BOTTOM LINE when concentrated interest can benefit at expense of general public majority voting and rep democracy work POORLY and special interest issues a conflict arises b w getting elected and using the resources efficiently usually the getting elected wins ie sugarcane 2 Shortsightedness Effect shortsight only see short term a as discussed earlier voters have small incentive to gather info therefore economic conditions have aMAJOR impact on their vote so politicians avoid complex issues such as social security that are hard 2 idenify with and focus on policy shorterm benefits and longterm costs and avoid vice versa 1 ex the bias towards budget deficit is a predictable result 3 Rent seeking favor
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