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ECO 481: Public Choice Theory

ECO 481: Public Choice Theory. Week 10: Government Exploitation & Schools. Dr. Dennis Foster. Exploitation. “Purposive political or rent-seeking efforts increase one’s wealth or income at the expense of others.” In private sector, profit = social gain.

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ECO 481: Public Choice Theory

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  1. ECO 481:Public Choice Theory Week 10:Government Exploitation & Schools Dr. Dennis Foster

  2. Exploitation • “Purposive political or rent-seeking efforts increase one’s wealth or income at the expense of others.” • In private sector, profit = social gain. • In public sector, profit (rent) = misallocation. • Government is the most powerful agencyin society.

  3. Exploitation - Taxation Rate SR T’ T* LR Taxes • State sets the rules, but there are limits. Laffer Curve & taxes:--Long run vs. short run.--In SR . . . rates =  revenue Minn. 13.95% inc. tax! Illinois Increasing to 5%.

  4. $ MB Q* Q’ MB Exploitation - Bureaucracy • Tend to find Q whereTB = TC. • Asymmetric information issue. • Voting with our feet is costly. • Wage issue • Higher/benefits • Overpaid? Not if XS S. “The public bureaucracy is overstaffed, overpaid, overqualified, and well protected.”

  5. Exploitation:Manipulating Median Voters • Choose budget or doom! • If Xr = revision budget, voter will take up to Xb. • BOAPW - Set Xr = 0!!! • Do median voters know what is efficient? • Also, small incremental tax hikes hardly muster opposition. Private Text Error Public Xr X Xb

  6. Exploitation - Education • “Following … Buchanan … one might saythat [the university] combines students as consumers who do not buy with faculties or producers who do not sell and taxpayers or owners who do not control.” • Full, tenured professors - min. workload • Raise stds. to get better students. • Incomes increase across the board. • Next best choices are usually poor. • Perverted purpose of tenure.

  7. Exploitation - Education • Some observations from NAU. • Work - research, service, administration. • Accreditation as oversight. • No standards. “Our job is to …” • AZ - post tenure review; ASU-West. • Usually, pay raises are =%. • Last year, “market adj.” • Business college & next best . . .

  8. Limits on Exploitation • Consumers will move over time. • Illinois is losing 25,000/year. • Sprawl beyond Flagstaff city limits. • Charter schools. • More competition with on-line universities. • Straining budgets are bursting.

  9. ECO 481:Public Choice Theory Week 10 – Part I:Government Exploitation Dr. Dennis Foster

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