Chapter 6-Political Economy Public economics
1 Chapter 6 – Political Economy Public Economics
Political Economy Defined Political Economy is the application of economic principles to the analysis of political decision making Self-interest -in the marketplace, this often leads to efficiency; different implications in" political market Maximization -one goal may be to maximize social welfare
2 Political Economy Defined • Political Economy is the application of economic principles to the analysis of political decision making. – Self-interest – in the marketplace, this often leads to efficiency; different implications in “political market.” – Maximization – one goal may be to maximize social welfare
Direct Democracy Several kinds of voting procedures Unanimity rules Majority voting rules Logrolling · Problems with a‖ of these rules: Arrows Impossibility Theorem
3 Direct Democracy • Several kinds of voting procedures: – Unanimity rules – Majority voting rules – Logrolling • Problems with all of these rules: Arrow’s Impossibility Theorem
Direct Democracy Unanimity rules Unanimity rules: All parties must agree for a policy to be implemented EXample: In principle, society could agree that a public good should be provided rather than not being provided Lindahl prices designed to elicit unanimous agreement for provision of public good
4 Direct Democracy: Unanimity rules • Unanimity rules: All parties must agree for a policy to be implemented. – Example: In principle, society could agree that a public good should be provided rather than not being provided. • Lindahl prices designed to elicit unanimous agreement for provision of public good
Direct Democracy EXample of Lindahl's procedure 2 individuals, Adam Eve Fireworks display(public good, denote as n) SA=Adam's share of total cost of fireworks provIsion For any given share, SA, Adam demands some quantity of fireworks
5 Direct Democracy: Example of Lindahl’s procedure • 2 individuals, Adam & Eve • Fireworks display (public good, denote as r) • SA =Adam’s share of total cost of fireworks provision • For any given share, SA, Adam demands some quantity of fireworks