Microeconomic Policy

Microeconomic Policy

A New Perspective

Clem Tisdell and Keith Hartley

This thoroughly accessible textbook shows students how microeconomic theory can be used and applied to major issues of public policy. In this way, it will improve their understanding of both microeconomic theory and policy and also develop their ability to critically assess them. Clem Tisdell and Keith Hartley have expanded upon their previous successful work on microeconomics. As a result, this new book is considerably updated with substantial chapter revisions, as well as new chapters dealing with business management, ownership, environmental issues, public choice, defence, conflict and terrorism.

Chapter 14: Do Votes Determine Policies? A Public Choice Perspective on Policy

Clem Tisdell and Keith Hartley

Subjects: economics and finance, industrial economics


INTRODUCTION In Western economies, governments perform many activities ranging from the management of aggregate demand, incomes and prices to the direct provision of goods and services such as defence, police, education and roads. Economists often try to explain and justify the extent of government activities in terms of market failure. In this context, a concern with the ‘public interest’ or maximizing community welfare might require governments to intervene to reduce monopoly power in product and factor markets, to provide public goods, and to correct externalities (see Chapter 2). Ideally, governments should undertake activities in which they have a comparative advantage. For example, even in private enterprise economies, governments are required to create ‘law and order’ for the enforcement of contracts enabling mutually advantageous trade and exchange in private markets. But it is not obvious that the market failure analysis satisfactorily explains the whole range of any government’s activities at the federal, central, state or local levels. Why, for example, do governments often supply goods and services which could be provided by private firms (for example, arms; refuse collection; transport; R&D establishments)? While there might be a case for state finance of some socially desirable activities (which?), it does not necessarily require government supply. Nor can it be assumed that government services will be operated by public spirited officials, devoid of self-interest, responding to the public will and dedicated to the achievement of the public interest. Indeed, it is paradoxical that economists were willing to apply the self-interest utility-maximizing...

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