Chapter 2: Government Decision Making: Public Choice Flashcards
four ways to spend money
Economize and seek highest value
Economize and don’t seek highest value
Don’t economize but seek highest value
Don’t economize and don’t seek highest value
Free market prices function to
Ration goods to consumers who most want them
Give incentives to producers to satisfy consumers
Give incentives to conserve scarce resources
“the calculation problem.”
If the state is to improve on the market it must know this information better than those who do these jobs.
spontaneous order
people organize themselves and interact efficiently, if given freedom to do so,
Individuals who interact in markets have advantages over state planning, such as:
- Freedom is agreeable to most people
- Markets utilize the ingenuity of millions of minds
- There are millions of small market experiments, each with low risk
- In markets, there is competition to serve others
- In markets, there are incentives to use resources efficiently
natural experiment
An experiment that occurs over the course of history naturally.
“public choice school”
explores how self-interested government employees make decisions
rational ignorance
refusing to expend resources to gather information that will almost certainly not lead to a change in the quality of life.
fallacy of division
thinking that what is true for a group must be true for all the individuals of the group.
individual choice
where individuals decide for themselves which is allowed in free markets
Authoritarian Choice
involves a single individual or governing body making decisions for the populace. The decision maker(s) may be elected or not. If elected, rational ignorance breaks the link between the will of the populace and the results of the collective decisions.
Democratic Choice
is an authoritarian choice made by individuals voting on decisions for the entire populace.
The original meaning of regulate
as used in the U. S. Constitution is “to make regular.”
Today, regulation means
“control”
Direct costs of regulation
Government administrative costs and compliance cost
Government administrative costs
sacrificed in order to pay government employees to monitor the regulatory program and enforce the statutes.
Compliance cost
how much must be sacrificed by the regulated entity to follow the law, which includes reporting costs, planning and administrative costs, and consulting costs.
Indirect Costs of Regulation
results from changes in behavior of firms and individuals due to the regulation, including
o value of output that is not produced due to the regulation
o wasteful activities that the regulation encourages, such as spending resources to hire lobbyists, to avoid the regulation, or to take advantage of loopholes that are inefficient, except for the regulation–like expensive tax shelters.
CAFE standards (Corporate Average Fuel Economy)
force auto manufacturers to maintain high average fuel efficiency.
Regulatory capture
occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties.
Rent seeking
involves individuals expending resources to prosper, not by creating value, but by using the legal and regulatory systems
Bootleggers and Baptists
an interesting form of rent seeking, because the rent seeker uses others to do his bidding. The bootleggers can only make a living if alcohol is illegal, since efficient legal production would put them out of business. So they use the Baptists, who also wish alcohol to be illegal, but for non-materialistic reasons, as stalking horses in the regulatory process.
Status quo minus fallacy
a particular variant of the status quo fallacy. It proposes that we consider the status quo, eliminate one element of it, and conjecture that this removed element will have only a direct effect, which will never be compensated for
law of unintended consequences
the warning that intervening in a complex system may create unanticipated and often undesirable outcomes
