Chapter 11 - Regulation, public goods, and benefit-cost analysis. This chapter focuses on the microeconomic function of government. In this sphere, the government has two main roles: to regulate private markets by providing basic rules and correcting for market failures that would otherwise result in inefficient production or consumption, and to provide certain desirable public goods and services that are not, or cannot be, provided via private markets.
Managerial Economics, 8e William F. Samuelson ● Stephen G. Marks Chapter eleven Regulation, Public Goods, and Benefit Cost Analysis Copyright © 2015 John Wiley & Sons, Inc. All rights reserved How many people does it take to screw in a light bulb? Economist: None, the market will do it Consumer Advocate: None, the regulators will do it ~Dennis Carlton and Jeffrey Perloff Copyright © 2015 John Wiley & Sons, Inc. All rights reserved For Discussion The FDA, AZT, and AIDS Azidothymidine, or AZT, retards multiplication of the AIDS virus in cells Copyright © 2015 John Wiley & Sons, Inc. All rights reserved I. Market failures and regulation Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Market failure Due to Monopoly Rent Seeking Government Responses Breaking Up Existing Monopolies Preventing Monopolistic Practices Preventing Mergers that Reduce Competition Preventing Collusion The United States versus Microsoft Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Market Failure Due to externalities Remedying Externalities Taxes Quantity Limits Private Payments Global Warming Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11.1 Production accompanied by an externality Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11.2 Optimal regulation of an externality Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Market Failure Due to externalities Promoting Positive Externalities Promoting Research The Patent System Copyright Regulatory Reform and Deregulation Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Market failure due to imperfect information Business Behavior—Assessing Risks Copyright © 2015 John Wiley & Sons, Inc. All rights reserved II. BenefitCost Analysis and Public Goods Provision Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Public Goods Public Goods and Efficiency Building a Highway Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11.3 Optimal output of a pure public good Copyright © 2015 John Wiley & Sons, Inc. All rights reserved The Basics of BenefitCost analysis Applying the Net Benefit Rule Dollar Values Efficiency versus Equity Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Evaluating a Public Project Public Investment in a Bridge Public Pricing Regulating the Ferry Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11.4 A BenefitCost Analysis of Building a Bridge Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Valuing benefits and costs Market Values Nonmarketed Benefits and Costs Direct Elicitation Indirect Market Measures Socially Determined Values Valuing Lives The FDA, AZT, and AIDS Revisited Copyright © 2015 John Wiley & Sons, Inc. All rights reserved ... Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11. 1 Production accompanied by an externality Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11. 2 Optimal regulation of an externality... Public Goods and Efficiency Building a Highway Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11. 3 Optimal output of a pure public good Copyright © 2015 John Wiley & Sons, Inc. All rights reserved... Public Pricing Regulating the Ferry Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 11. 4 A BenefitCost Analysis of Building a Bridge Copyright © 2015 John Wiley & Sons, Inc. All rights reserved