ECON-221 Lecture Notes - Lecture 27: Rent-Seeking, Rational Ignorance, Price Support
12 Oct 2020
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Document Summary
Sources of inefficiency in the political process: expenditure of public goods, tax and laws regulating firm and individual behaviour is determined by democratic votes. Cost benefit principle is valid a representation of people making decisions in political and government domain as it is of decisions made in private and market domains. Role of incentives influencing outcomes is potent and explanation of behaviour. Inefficiencies often arise in public sphere because of structural incentive problems (not ignorant legislators: role of incentives in public choice. Other politicians support this because the politicians constituents taxes will rise, and wont get direct benefit from the project. But politician support so that they will support his. Logrolling the practice whereby politicians support one another"s legislative proposals: rent seeking. Related source of inefficient occurs because gains from government projects are often concentrated in hands of few beneficiaries while costs are spread. Beneficiaries have powerful incentives to organize and lobby in favors of public projects.
