510 Final
Terms
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- Causes of government failure
- 1) rational ignorance/rational inaction 2) agency problems 3) rent seeking 4) democratic decision-making process
- Condorcet's Paradox
- Possibility of cyclical majorities, that is, no legislative proposal beats all others
- Solow's Key Points
- 1) exhaustible resources are capital assets 2) real net prices should rise with the interest rate for their risk class 3) prices will rise high enough to choke off demand. if markets are perfect, exactly when resource is exhausted.
- Policy cycle: identification stage
- scientists and academics play a key role. Thought leaders begin to disseminate new ideas through articles, op-eds, TV interviews, etc.
- Policy cycle: politicization stage
- As information diffuses, interest groups begin to organize around the issue.
- Policy cycle: legislative stage
- In the U.S., proposals are made by individual Congresspeople and go through committees before they reach a vote on the House or Senate floor. Committees play a key role in shaping the flow of legislation.
- Examples of "veto players" that can kill a bill
- kill bill!
- Policy cycle: implementation stage
- Most environmental legislation is sent to an independent agency such as the Environmental Protection Agency for implementation. Exec. Order 12866 requires econ. analysis for any new laws with >$100M impacts.
- Real discount rates consist of:
- 1) Pure time preference 2) Growth discounting
- Discount rate equation
- r = p + a * c' p = pure rate of time preference a = rate at which marginal utility declines with respect to consumption c' = rate of growth of consumption over time
- Define economic rent
- the difference between what someone would be willing to get paid for something and the amount they're actually getting (e.g., star athlete)
- How can governments create rents?
- By eliminating competition
- Examples of rent-seekers
- oil companies steel industry (tries to keep competition out) Local telephone companies *Rent seeking makes special interest groups better off at the expense of the public.
- Resource prices: what do decreasing prices over time of exhaustible resources indicate?
- Technology for extraction is outpacing exhaustion of resources
- 2 components of discounting
- 1-pure rate of time preference (e.g., I might not be around to enjoy that in the future). 2) growth due to technological innovation
- Should society have a pure time preference component for discounting? (why not?)
- Many would argue no because society doesn't have the same concern about not existing in the future as individuals do.
- weak sustainability (definition)
- human-made capital can substitute for natural capital.
- Hartwick's Rule
- Gains from exhaustible resources must be reinvested in natural or human-made capital over time. Such a substitution can be justified so long as the increase in the productivity of human-made capital more than offsets the loss in productive capacity from natural capital.
- Strong sustainability
- Human capital can't really replace natural capital.
- 3 main concerns that support Strong Sustainability view
- - uncertainty (how to offset ecosys-services?) - discontinuities (disruption of thermohaline circulation) - irreversibility (climate change, extinction)