文档介绍：Chapter 6 – Political Economy
Public Economics
1
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.
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Direct Democracy
Several kinds of voting procedures:
Unanimity rules
Majority voting rules
Logrolling
Problems with all of these rules: Arrow’s Impossibility Theorem
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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.
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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.
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Figure
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Direct Democracy: Example of Lindahl’s procedure
Figure shows the relationship between each person’s tax share & quantity of fireworks demanded.
Each person demands more fireworks as the share of costs paid falls.
Shares add up to one: SA+SE=1
Lindahl prices: Each person faces a “personalized price” per unit of the public good, which depends on the tax share.
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Direct Democracy: Example of Lindahl’s procedure
Equilibrium: set of Lindahl prices such that each person votes for the same quantity of the public good.
In Figure , this occurs at quantity r*, and each person’s share is measured on the x-axis.
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Direct Democracy: Feasibility of Lindahl’s procedure
Could imagine an auctioneer announces initial set of tax schedules, then Adam & Eve vote on quantity of fireworks.
If they agree on quantity, stop. Otherwise, continue process with new tax shares.
Would converge to r*, w