230 likes | 616 Views
Government in the Market Economy. Chapter 19. Chapter 19 OVERVIEW. ExternalitiesSolving ExternalitiesPublic GoodsOptimal Allocation of Social ResourcesBenefit-Cost ConceptsBenefit-Cost CriteriaAdditional Methods for Improving Public ManagementRegulatory Reform in the New MillenniumHealth-
E N D
1. MANAGERIAL ECONOMICS12th Edition By
Mark Hirschey
2. Government in the Market Economy Chapter 19
3. Chapter 19OVERVIEW Externalities
Solving Externalities
Public Goods
Optimal Allocation of Social Resources
Benefit-Cost Concepts
Benefit-Cost Criteria
Additional Methods for Improving Public Management
Regulatory Reform in the New Millennium
Health-Care Reform
4. Chapter 19KEY CONCEPTS negative externality
positive externality
internalize the externality
Pigovian taxes
command-and-control regulation
public good
nonrival consumption
private good
rival consumption
nonexclusion concept
nonexclusionary
exclusion concept
common resources
tragedy of the commons
free-rider problem
hidden preferences problem Pareto satisfactory
Pareto optimal
potential Pareto improvement
marginal social costs
marginal external costs
marginal private costs
marginal social benefits
marginal private benefits
marginal external benefits
social rate of discount
social net present-value
benefit-cost ratio analysis
social internal rate of return
cost-effectiveness analysis
privatization
5. Externalities Negative Externalities
Air, noise, and water pollution are familiar negative externalities.
Negative externalities cause overproduction because sellers do not consider all social costs.
Positive Externalities
Education generates positive externalities.
Positive externalities cause underproduction because sellers cannot reflect the full social value of production in the prices charged.
8. Solving Externalities Government Solutions
Taxes are often used to correct negative externalities.
Government sometimes controls the effects of externalities by regulation.
Market Solutions
Markets can provide effective penalties to moderate negative externalities.
Markets can give incentives for the production of goods and services with positive externalities.
9. Public Goods Rivalry and Exclusion
Public goods are nonrival in consumption.
Use by certain individuals does not reduce availability for others.
Public goods tend to be nonexclusionary.
It is often impossible to confine benefits to paying customers.
Free Riders and Hidden Preferences
Free-riders enjoy benefits at no cost.
Hidden preferences can exist for public goods.
12. Optimal Allocation of Social Resources Pareto Improvement
If a public project makes at least one individual better off and no one worse off, then the project is Pareto satisfactory.
When all such projects have been undertaken, the situation is deemed Pareto optimal.
Marginal Social Costs and Benefits
Optimal allocation of social resources requires balancing marginal social costs and benefits.
MSC = MSB at optimum.
13. Benefit-Cost Methodology Benefit-Cost Concepts
Statement of objectives.
Discussion of alternatives.
Quantification of related costs and benefits.
Selection of a criterion for acceptable project determination.
Specification of an appropriate social discount rate.
Social Rate of Discount
Determining the true cost of social capital is crucial.
15. Benefit-Cost Criteria Social Net Present-Value
Invest when SNPV > 0.
Do not invest when SNPV < 0.
Benefit-Cost Ratio
Invest when B/C > 1.
Do not invest when B/C < 1.
Internal Rate of Return
Invest when SIRR > k.
Do not invest when SIRR < k.
16. Additional Methods for Improving Public Management Cost-effectiveness Analysis
Purpose is to determine how to best employ resources in a given social program.
Useful when output is difficult to express in monetary terms.
Privatization
Public-sector resources are transferred to the private sector in the hope that the profit motive might spur higher product quality, better customer service, and lower costs.
17. Regulatory Reform in the New Millennium Promoting Competition in Electric Power Generation
Setbacks limit future potential.
Fostering Competition in Telecommunications
Emerging competition battles larger rivals.
Reforming Environmental Regulation
Improving Regulation of Health and Safety
18. Health-Care Reform Managed Competition
Uncontrolled increases in health-care expenditures and a growing number of uninsured pose daunting challenge.
Reforms seek to expand access to health insurance and improve health-care services.
Outlook for Health-care Reform
Economic incentives help control costs, improve access, and give consumers the quality of healthcare that they want.