This seminar in public economics is half of a two-part graduate sequence. Ph.D. students may qualify for a field in public economics by completing these two courses and passing a written field examination. The rationale for government programs and services is developed from the theory of market failure.
Important failures arise from the existence of public goods and externalities.
Theoretically appropriate corrections for these failures are discussed, along with the practical problems of implementation. When market failures and inefficiency prevail, economists sometimes advocate cost-benefit analyses of reform proposals. Cost-benefit analysis is an applied methodology with a particular kind of value judgment, a particular social welfare function. The issue of social welfare is also central to the theoretical analysis of income redistribution and social insurance. While democratic decision rules do not guarantee economic efficiency, they nevertheless have wide appeal.