Doing Good in the World – Recap

1. Doing Good in the World – Recap • Mandates & Limits • Mandates on producers increase production costs • Examples: minimum wages, fewer hours, health & education • Higher costs without higher willingness to pay lowers employment and wages • Who wins and who loses from an external policy? • Because lower wages & employment means lower incomes, we must ask: • Does limiting child labor increase or decrease schooling? • What do children do if they can’t “officially” work? • Does mandating higher wages increase or decrease poverty? • Do high wages keep the least skilled out of the best jobs? • Does mandating higher wages increase or decrease child labor overall? • If the poorest cannot qualify for high wage jobs, do children work more? • Who is in the best position to answer these questions and pick winners & losers? • Is cultural imperialism ever justified? Under what conditions? • If a democratic government sets labor policy, can we infer that these standards maximize welfare? • Would the US accept the standards we seek to impose? • Alternative Policies • Higher costs with higher willingness to pay maintains employment and wages • What can be done to increase consumer willingness to pay? • What if consumers aren’t willing to pay? • Higher demand raises employment and wages • What can be done to raise demand? • Complicating Factors -- Protectionism

2. Semester Recap & Review • Rationales for Government Intervention • Efficiency (Market Failure) • Redistribution (Equity) • Political Incentives

3. Tools of Government Intervention • Regulation • Price Controls (Electricity, Wages, Crops) • Entry Controls (Beauty, Radio, Taxi, Cable) • Product Controls (Drugs, Toys) • Process Controls (Discrimination, Emissions) • Information Controls (Warning Labels) • Competition Controls (Price Fixing) • Access to Courts (Product Liability) • Taxes • Public Provision or Allocation

4. Government in Perfect Markets • Ideal Markets are Efficient (Maximum Social Benefit) • All goods with value>cost get produced • No goods with cost>value get produced • Efficiency Conditions • Perfect Competition • Perfect Information • Clear Property Rights • No Entry/ Exit Barriers • Rational Actors • Role for Government in Efficient Markets • Assign and protect property rights (Coase) • Enforce contracts • Establish desired distribution of wealth

5. Government in Imperfect Markets • Imperfect Competition • Antitrust • Market Failures • Natural Monopoly (Utility Deregulation) • Externalities (Environmental Regulation) • Public Goods (Intellectual Property) • Asymmetric Information (Product Safety) • Transaction Costs (Coase Theorem)

6. What about Imperfect Government? • Efficient Government Intervention • Wilson Matrix • Collective Choice • Political Incentives • Market Failure versus Government Failure

7. Final Exam -- Admin • Office Hours on Friday 9:30 -11:30 (by appointment) • Section 1 • 1415 Biomedical and Physical Sciences Building • Thursday 10am • Section 2 • 1410 Biomedical and Physical Sciences Building • Monday 3pm • Time: 90 Minutes • Format: Multiple Choice, Short Answer, Problems • Other: No Notes, No Calculators • Grades: See Web Site on May 2

8. Final Exam Review Sheet • Product Safety • Safety & Efficiency • Expected Value Calculations (How & Why) • Regulatory Approaches (Theory & Practice) • Command & Control, Liability System, Informed Consent • Cases: GM Foods, California Space Heaters • Externalities • Externalities & Efficiency • Regulatory Approaches (Theory & Practice) • Taxes, Command & Control, Market Mechanisms (Tradable Permits) • Coase’s Approach (Theory & Practice) • Cases: Acid Rain & Global Warming, Urban Air Rights • Corporate Social Responsibility • Efficiency Perspective vs. Responsibility Perspective • Implementation Issues • Effects of CSR mandates & alternative approaches • Cases: Nike in Southeast Asia, Child Labor • Cumulative Issues Applied to Current Topics • Political Incentives (Wilson) • Cost of Redistribution • International Trade