Howlett Chapter 2

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Public Policy
k O D O L O V

Howlett Chapter 2Positivist Approaches to Policy AnalysisThe mainstream in prescriptive policy analysis consists of applying principlesfrom economics especially welfare economics to public problems Welfare economicsBased on the notion that individuals through market mechanisms should be expected to make most social decisionsIn Market Failures political institutions can act to supplement or replace markets to produce better outcomes in terms of enhancing overall social welfareinclude public goods natural monopolies externalities imperfect information the tragedy of the commons and destructive competitionAll goods and services in society can be divided into a relatively small number of types according to the transactional criteria of exclusivity and exhaustivenessExclusivity refers to transactions involving a good or service limited to the consumption or use by a single consumerexhaustiveness refers to goods and services whose consumption diminishes their availability to others Determine the need of government action4 types1 pure private goods can be divided up for exclusive sale and are no longer available to others after their consumption and can usually be delivered effectively through the market mechanism ex food 2 pure public goods or services street lighting are consumed by numerous users without diminishing the sum of the good available Will not generate profits so supplied by the tax system 3 toll goods semipublic goods such as bridges do not diminish in quantity after use but for whose use it is possible to charge These can be provided by either market or nonmarket means4 commonpool goods fish in the ocean usage cannot be directly charged to individuals but whose quantity is reduced by consumption Require a nonmarket organization like a government to ration their supply otherwise be quickly exhausted by competitive market firmsNatural monopoly refers to the situation in certain industries with large capitalrequirements Lack of competition leads to a loss of the societys economic welfare if monopoly prices are charged for these goods or services Governments can regulate prices and other aspects of the good or service provided in order to prevent the exercise of monopoly market power by earlyentrant firmsImperfect information occurs when consumers andor producers lack the information necessary to make rational decisions decisions do not serve the society as a whole justifying government action to mandate information disclosureIf there are externalities the market is deemed to fail
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