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ECO 481: Public Choice Theory

ECO 481: Public Choice Theory. Week 12: Coercive Redistribution Environmental Goods. Dr. Dennis Foster. Why is their caring?. I. Coercive Redistribution. We expect wealthier to pursue rent-seeking. We have a strong altruistic streak. Especially for those close to us.

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ECO 481: Public Choice Theory

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  1. ECO 481:Public Choice Theory Week 12:Coercive Redistribution Environmental Goods Dr. Dennis Foster

  2. Why is their caring? I. Coercive Redistribution • We expect wealthier to pursue rent-seeking. • We have a strong altruistic streak. • Especially for those close to us. • We give a lot . . . to civic organizations. • Are we just bribing the poor? [Does it even work?]

  3. Support for Welfare • From bureaucrats. • From private suppliers of transfer goods. • From “intellectuals.” • From politicians – the New Deal & Great Society • Complicated programs that garner votes.

  4. What is the solution? • Economic growth! • Capitalists denigrated“An ideology of equality and entitlement borne of desperate conditions has now taken such hold that even able supporters of effective capitalistic institutions are placed on the defensive.” • Keep a low profile!

  5. Equality • 53% get some direct benefits (mostly feds). • Doesn’t include “public goods!” • Leaky bucket of federal redistribution. • Est. 66% - 75% doesn’t go to beneficiary. • Esp.  $7800 > claimed amt. needed. • It’s easy being “politically generous.”So, why doesn’t that “cure” poverty.

  6. Politics & Redistribution • Must form coalitions. • Results in a lot of unintended indirect transfers. • Includes monetary & fiscal policies. • Distribution can go sideways or up! “Whenever vast new government programs come into being the consequences are apt to be widespread, consequential, and somewhat unpredictable.”

  7. Politics & Redistribution • Generally from poorly organized to well organized. • It’s not about the poor! • Does “social justice” meananything other than, “More forme and less for you?” • We bias results against what a market would do. “State redistribution is not morally superior tothat of markets or private charity.”

  8. The Demand for Amenities II. Environmental Goods • Growth in environmental “awareness” inthe U.S. in the 1980s. • A direct outgrowth of capitalism and rising living standards.--How do we make LDCs environmentally friendly??? • Government actions: illusory, costly (>benefits) & worsening.

  9. Optimal level of pollution $ $ MC-p MC-a T 0 E-m E-s Quantity of pollution • Market - overproduces. • Not on purpose! • Reaching efficiency:--Tax = 0T--Mandate = E-s • Both can/are likely to be inefficient! Environmental problems must be understood more as failures by gov’t to specify property rights than as offshoots of private profit-seeking.

  10. Inefficient Outcomes • Coal & the Clean Air Act (1970, 1977, 1990) • Choices: scrubbers, washing, use low-SO2 coal. • Mandate on scrubbers benefits . . . • 1990 introduced permit trading.Did EPA get estimated costs right?Did vested industry get it right? Doesn’t anybody read Hayek?

  11. Selling Pollution RightsGoal: Reduce Pollution by 3 Units How? Cost? Price of permits? Issue 2 each?

  12. Property Rights • Coase – As long as transaction costs are low. • Not a market problem--Airspace.--Fish.--Endangered species.--Wild species. • GroupOn and solving the free rider problem.

  13. Elephants& Property Rights • Elephants in Africa1970s - 1.2 million1980s - 600,000

  14. Limitations • Transactions costs must be low. • Assignment of rights will be contentious. • What is optimal level of pollution? • It is not a scientific question!! • Who will set the tax? Who will be exempt? • Do we really want to treat symptoms rather than the source? Information and incentive problems are well-handled by the market and are “at the heart of government mismanagement.”

  15. What about global warming? • What are we talking about? • What is the basis for the alarm? • Do the alarmists have a good track record? • Why is the debate over if conclusions are model-driven? • What is the criteria for being wrong? • What’s wrong with the McKitrick tax?

  16. ECO 481:Public Choice Theory Week 12:Coercive Redistribution Environmental Goods Dr. Dennis Foster

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