1.4.1 State Provision of Public Goods and Information

Question 1

why may public goods be provided by the state

Answer 1

prevent the free rider problem

Question 2

what are the pros of state provision

Answer 2

• correct market failure
• help to bring about equality as everyone has access to basic goods
• there will be benefits to the goods themselves
• by using competitive tenders the government can ensure efficiency

Question 3

how does state provision correct market failure and why is this good

Answer 3

by providing important goods which would otherwise not be provided. It will lead to improved social welfare

Question 4

what are the cons of state provision

Answer 4

• since the market is not involved, the government may produce the wrong combination of goods as consumers cannot indicate their preferences
• the government may be inefficient at production as they have no incentive to cut costs
• officials may suffer from corruption and conflicting objectives

Question 5

what is outsourcing

Answer 5

when the government pays a private company to provide the public good instead of doing it themselves

Question 6

what are the pros of outsourcing

Answer 6

• lower price
• higher quality

Question 7

how does outsourcing lead to lower prices

Answer 7

private firms submit tenders for public sector contracts, this element of competition drives down prices for the government

Question 8

how does outsourcing lead to higher quality

Answer 8

the government can benefit from the skills of private sector firms, who may run their firms more efficiently

Question 9

what are the cons of outsourcing

Answer 9

• firms may take advantage of information gaps and submit higher priced bids when tendering (also maybe cartels/collusion)
• firms may not have the incentive to ensure high quality

Question 10

why may private sector firms not have the incentive to ensure high quality

Answer 10

the government pays for the service rather than the user, so consumer dissatisfaction may not reduce their profits in the short term

Question 11

what does the effectiveness of state provision depend on

Answer 11

• how well governments budget for public goods to ensure quality and quantity
• government policy and planning
• how effectively outsourcing is monitored for quality

Question 12

what are the pros of information provision

Answer 12

• reduces information gaps, hopefully leading to more rational decision making and better outcomes
• can be transferred from one generation to another
• can reinforce legislation to make laws more effective

Question 13

what are the cons of information provision

Answer 13

• the message may be ignored
• public may become resentful of the government’s “nanny state” approach
• demand for product may be very unresponsive due to product being habit-forming or cheap

Question 14

what does the effectiveness of information provision depend on

Answer 14

• addictiveness of product
• how well message gets across
• how well message is targeted
• will other measures be more effective?

Question 15

what other measures could be used alongside/instead of information provision

Answer 15

• legislation
• subsidies