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 summarych6I. Differences & Similarities between Governments & MarketsA. Upon political decisons being made democratically choices of individuals will effect the outcome in govt sector just as the effect the market sector1. Competitive Behavior is Present both Market and Public Sectorsa) 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 linka) basically not a 1to1 link of payment and receipt ex. someone might pay taxes whole life and not live to see benefit from social security3. Scarcity Imposes the Aggregate Consumption-Payment link in both sectorsa) resources used 4 one purpose by govt have alt uses; therefore it is costly to provide goods and services thro govt4. Private-Sector action is based on mutual agreement; Public-Sector action based on Majority rulea) 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 that5. When collective decisions are made Legislatively, voters must choose among candidates who represent a bundle of positions on issuesa) 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 sectorsa) 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 neighborsB. POLITICAL DECISION MAKING: OVERVIEW1. 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 Well1. “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 efficientc) INSERT EXHIBIT #5 PG 132(1) when distribution of benefits and cost both widespread amg voters (type 1) 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 Poorly1. Special Interest Effect- an example of type 2 projects; in which one generatessubstantial 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 > benefitsa) 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 legislationc) Pork-Barrel Legislation- bundling of unrelated projects benefiting many interests into a single billd) logrolling is a “trade” so they trade votes; whereas all the pork is in one barrel all towards one single bille) “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!f) INSERT EXHIBIT 6 trade votes via logrolling or even pass a pork-barrel legislation tht would pass all 3 =>>>>RESULT PASS COUNTERPRODUCTIVE LEGISLATIONg) 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
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