Economics of the Public SectorPreface Economics of the public sector, Public finance, and Public economics. About the textbook The Brief Biography of the AuthorJoseph E. Stiglitz was born in Gary, Indiana in 1943. A graduate of Amherst College, he received his PHD from MIT in 1967, became a full professor at Yale in 1970, and in 1979 was awarded the John Bates Clark Award, given biennially by the American Economic Association to the economist under 40 who has made the most significant contribution to the field. He has taught at Princeton, Stanford, MIT and was the Drummond Professor and a fellow of All Souls College, Oxford. He is now University Professor at Columbia University in New York. In 2001, he was awarded the Nobel Prize in economics. He was a member of the Council of Economic Advisers from 1993-95, during the Clinton administration, and served as CEA chairman from 1995-97. He then became Chief Economist and Senior Vice-President of the World Bank from 1997-2000. Stiglitz helped create a new branch of economics, "The Economics of Information," exploring the consequences of information asymmetries and pioneering such pivotal concepts as adverse selection and moral hazard, which have now become standard tools not only of theorists, but of policy analysts.He has made major contributions to mcro-economics and monetary theory, to development economics and trade theory, to public and corporate finance, to the theories of industrial organization and ,rural organization, and to the theories of welfare economics and of income and wealth distribution. In the 1980s, he helped revive interest in the economics of R&D. His work has helped explain the circumstances in which markets do not work well, and how selective government intervention can improve their performance. Recognized around the world as a leading economic educator, he has written textbooks that have been translated into more than a dozen languages. He founded one of the leading economics journals, The Journal of Economic Perspectives. He has recently come out with a new book, The Roaring Nineties (W.W. Norton). His book Globalization and Its Discontents (W.W. Norton June 2001) has been translated into 28 languages and is an international bestseller.The framework of the book Chapter 1 The Public Sector ina Mixed Economy Chapter 2 The Economic Rationale for Government Activity Chapter 3 Public Goods and Publicly Provided Private Goods Chapter 4 Public Choice Chapter 5 Public Production and Bureaucracy Chapter 6 Externalities and The Environment Chapter 7 The Analysis of Expenditure Policy Chapter 8 Cost-Benefit Analysis Chapter 9 Health Care Chapter 10 Social Insurance Chapter 11 Taxation Chapter 12 Fiscal FederalismChapter 1 The Public Sector in a Mixed Economy 1,What are the central questions with which the economics of the public sector is concerned? 2. What are the differing views concerning the economic role of government? How have they changed over the years and what has given rise to those changes? 3.How do economists go about studying the economics of the public sector? 4.What are the principal sources of disagreement among economists about appropriate policies for government to pursue?THE ECONOMIC ROLE OF GOVERNMENT 1, A Mixed Economy --While many economic activities are undertaken by private firms, others are undertaken by the government. In addition, the government alters the behavior of the private sector through a variety of regulations, taxes and subsidies. --The United States has a mixed economy. Does China has a mixed economy? --How to define the boundary between government and private activities? Throughout the history of many countries, the economic role of the government has undergone important changes. the United States ,West Europe, East Europe and China.different role in different countries: Location axis The United Western North Korea States European Cuba different role in different periods: Time axis2. Different Perspectives on the Role of Government To understand better contemporary perspectives on the economic role of government, it can be helpful to consider the different perspectives that have evolved in the past. --Mercantilists: the government should actively promote trade and industry. --Adam Smith: argued for a limited role for government. Laissez faire: the government should leave the private sector alone; it should not attempt to regulate or control private enterprise. Unfettered competition would serve the best interest of society. --Karl Marx: advocated a greater role for the state in controlling the means of production.Different perspectives on the role the position for today--Current view: There is now widespread agreement that markets and private enterprises are at the heart of a successful economy, but that government plays an important role as a complement to the market. The precise nature of that role remains a source of contention. 3. An Impetus for Government Action: Market Failures --The Great Depression:..\i{:\public economics Uf WHR i% #4#\\the great depression. ppt The Great Depression was the event that most fundamentally changed attitudes toward government = — =--Keynes: government should and could stabilize the level of economic activity. --The belief was embedded in legislation in the United States. The Full Employment Act of 1946, the Council of Economic Advisers, the New Deal, War on Poverty 4.Government Failures There are four major reasons for the systematic failures of the government to achieve its stated objectives. --limited information --limited control over private market responses--limited control over bureaucracy --limitations imposed by political processes _ \iRVE\public economics UEEE\ REE BERET EL BU KR. ppt 5.Achieving Balance Between the Public and Private Sectors The dominant view is that limited government intervention could alleviate (but not solve) the worst problems: thus, the government should take an active role in maintaining full employment and alleviating the worst aspects of poverty, but private enterprise should play the central role in the economy.The emerging consensus _\UREE\public economics Vet \Vet BEBE E\northern e.g. rock bank 47 (4.ppt Financial system reformation | [privatization | State enterprises reformation The activities are still ongoing in China!WHAT OR WHO IS THE GOVERNMENT 1.The Untied States has a federal governmental structure --federal government: is responsible for national defense, the post office, the printing of money, and the regulation of interstate and international commerce. --the state and local governments: education, police and fire protection, and the provision of other local services, such as libraries, sewage, and garbage collection, =2.What distinguishes those institutions that we have labeled as “government” from private institutions? --in a democracy the individuals who are responsible for running public institutions are elected, or are appointed by someone who is elected. Those who are responsible for administering private firms are chosen by the shareholders. --the government is endowed with certain rights of compulsion that private institutions do not have.THINKING LIKE A PUBLIC SECTOR ECONOMIST 1. Economists study scarcity, and inquire into four central economic questions: --what is to be produced? --how is it to be produced? --for whom is it to be produced? --how are these decisions made?2.Public Economists are Concerned with: --what is to be produced? How to split our limited resources between public goods and private goods? = “eon te| Society’s production possibilities schedule Private goods (Butter) Production possibilities schedule Public goods (Cannon)--how should it be produced? = This question includes two kinds of issues: {Whether to produce privately or publicly; Whether to use more capital and less labor or vice versa; Whether to employ energy-efficient technologies. Government policy affects how firms produce the goods: environmental protection legislation & payroll taxes--for whom is it to be produced? The question of distribution. = Government decisions about taxation or welfare programs affect how much income different individuals have to spend. = Some groups will benefit from the production of one public good, others from another.--For whom is it to be produced? --- Examples, = the law to stimulate employment; = the program to exempt tuition of primary school pupils and middle school students who are from the countryside; = the cooperative medical service system; = the activities to control the price of real estate.--how are choices made? Choices are made collectively. = Private choices are made by single individual according his or her preference\interest; = Public decision-making is far more complex. One of the objectives of public sector economics is to study how collective choices are made in democratic societies. 3.Analyzing the Public Sector In addressing each of the fundamental economic questions, there are four general stages of analysis:--knowing what activities the public sector engages in and how these are organized. --understanding and, insofar as possible, anticipating the full consequences of these governmental activities. --evaluating alternative policies --interpreting the political process 4.Economic Models 5.Normative versus Positive Economics --positive economics is concerned with what “is”, with describing how the economy functions. --normative economics deals with what “should be”, with making judgments about the desirability of various courses of action. UME\public economics PLCE\ URE ERE BL Normative and positive analysis. pptDISAGREEMENTS AMONG ECONOMISTS Unanimity is rare in the central questions of policy debate. Disagreements arise in two broad areas. --differences in views on how the economy behaves --disagreement over values