The Scope of Public Economic

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The Scope of Public Economic

"Market Failure"

Public consumption

Characteristics

Rivalness

Excludability

Externalities

Consumption externalities

Consumption externalities can be seen as qualitatively different

Related to the analysis of public goods

One agent’s consumption of a good directly affects another

Production externalities

Model this as a parameter shift

One firm influences another’s production conditions

Nonconvexities

The market may not actually fail completely

Could still get decentralisation

But includes other stuff too

…positive externalities

Interactions amongst agents…

Covers many well-known things

Weird tastes

Fixed costs

Increasing returns

Market Deficiencies

2

Regulation

Private finance initiatives

Franchising

Internal markets in health

Pension / social security provisions

Monopoly / Anti trust legislation

1

Problems of information

Asymmetric

Imperfect / incomplete

Thin markets

Not enough traders

Missing markets

Highly specialised commodities

Futures? Risk?

Distorted markets

Restrictive practices

Monopoly

The Private Economy

Competitive Failure and Efficiency

The market “failures” raise two classes of problem

The implementation problem

The characterisation problem

The Adam Smith result is fairly demanding

Looking Forward

All of the elements presented here play a role

Optimal taxation

Policy design: social insurance

We make repeated visits to the problem of design

Equity, social welfare and taxation

Welfare analysis of redistribution

Begin with motivation

Redistribution

Two broad areas for consideration

Implementation

design

asymmetric information

Motivation

SWF approach

Basic principles: approach

Constitution approach

Normative economics

An area where private economy approach is (almost) silent

Move away also from simple efficiency

Potential Pareto

Pareto criterion

Move away from private-only model

Define public economics as a “complement”

Slightly odd preoccupation