Beruflich Dokumente
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WHAT IS POLITICS
= study of power and authority, and the exercise of power and authority: how power/authority are attained & exercised: study of mechanisms for making collective choices Power = the ability of an individual or group to achieve outcomes which reflect his objectives Authority exists whenever one, several, or many people explicitly or tacitly permit someone else to make decisions for them in some category of acts (Lindblom): Politics = struggle over authority In an untidy process called politics, people who want authority struggle to get it while others try to control those who hold it.
HETEROGENEITY OF INTEREST
a conflict of interests between economic actors in a society Questions of power and authority are relevant only when there is heterogeneity of interests Actual policies are often quite different from optimal policies, the latter defined as subject to technical and informational, but not political, constraints Positive PE = how political constraints may explain the choice of policies and thus economic outcomes that differ from optimal policies and their outcomes This positive view implies a normative approach, how, given the existing political constraints,
DISCIPLINES COMPARED - I
1. Public Economics / Public Finance = Economics of public sector: How economic decisions of the government affect economic actors: Effects of tax & expenditure policies on individuals & firms Neoclassical welfare economics: taking the governments objective of welfare maximization as given and asking how tax and expenditure policies may be used to achieve the objective One area of normative public finance is the formulation of simple criteria for government decision making, but this is not in terms of choosing the objective to be maximized, but of choosing criteria and methods to achieve the
DISCIPLINES COMPARED - II
2. Public Choice = How the objectives are chosen: How collective choices are made studying decision making mechanisms per se, considering not only the positive and normative aspects of different ways of making collective choices, but also the question of how a society can choose over the set of possible choice mechanisms. Public choice differs from political science, in that it stresses the use of tools of economic analysis to study collective choices. Public choice can be defined as the economic study of non-market decision making, or simply the application of economics to political science.
TYPES OF HETEROGENEITY
Importance of heterogeneity for PE - two propositions heterogeneity is necessary for there to be political constraints. the effect of politics on economics follows from the mechanisms by which these conflicts are resolved Heterogeneity is also necessary for there to be markets, but heterogeneity of interests plays out quite differently when addressed through the market than through the political process 1.Ex ante-heterogeneity: individuals are heterogeneous in a number of dimensions, leading them to prefer different policies ex ante 2.Ex post heterogeneity: distributional implications
Heterogeneity is Central to PE
1. All individuals may be identical ex ante, but are not identical ex post - ex-post heterogeneity is key to the possibility of time inconsistency in the presence of a benevolent government Time inconsistency = a policymaker announcing a policy for t1at t0and then enacting a different policy at t1 if it suits his own interests imperfect credibility of policy due to the possibility of time consistency 2. Though heterogeneity is central to both areas, there is a key difference PE: endogenous determined objective function Welfare economics: given multi-agent objective function
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