Example of The State Principle

‭The state‬ ‭ )‬ a ‭Externalities:‬ ‭In the presence of externalities, the quantities produced or consumed are not optimal:‬ ‭Pigou‬‭,‭T ‬ he economics of welfare‬‭,‭1 ‬ 920‬‭:Observe that‬‭certain situations are not optimal because we‬ ‭can improve the satisfaction of one individual without deteriorating that of the other. This is the‬ c‭ ase with externalities.‬ ‭Externality‬‭:when the actions of an eco agent modify‬‭the well-being of other agents without giving‬ ‭rise to‬ ‭compensation.‬ ‭It is a market failure because economic agents produce or consume an excessive (or insufficient)‬ ‭quantity of certain goods compared to the level that would be socially desirable.‬ ‭Negative externality‬‭:private costs of Y < social cost‬‭(sum of private costs of Y and costs‬ ‭borne by the victims).‬ ‭Positive externality‬‭:social benefits > private benefits‬‭(e.g. R&D expenditure of 1 E is diffused -‬ ‭see growth rate).‬ ‭ he State can intervene:‬ T ‭-‬‭Imposition of a tax‬‭:makes it possible to increase‬‭the private marginal cost of E so as to make it‬ ‭equal to the social marginal cost: this is the principle the polluter‬‭pays‬‭.‬ ‭-‬‭State can subsidize to help positive externalities‬‭:‬ ‭P.‬ ‭Romer‬‭,‭I‬ncreasing‬ ‭Returns‬ ‭and‬ ‭Long-Run‬ ‭Growth‬ ‭,‭1 ‬ 986‬‭:‭1 ‬ er-‬ ‭endogenous‬ ‭model‬ ‭based on positive externalities.‬ ‭Pb:‬‭returns‬‭on‬‭K‬‭can‬‭be‬‭decreasing‬‭at‬‭the‬‭level‬‭of‬‭E‬‭but‬‭constant‬‭at‬‭the‬‭level‬‭of‬‭the‬‭economy‬‭-‬ ‭certain‬‭positive‬‭externalities‬‭are‬‭produced‬‭in‬‭sub-optimal‬‭quantities‬‭by‬‭the‬‭market‬‭as‬‭long‬‭as‬‭the‬ ‭private return is lower than the public return.‬ ‭A‬ ‭subsidy‬ ‭to‬ ‭the‬ ‭I‬‭makes‬‭it‬‭possible‬‭to‬‭ensure‬‭that‬‭the‬‭EI‬‭+‬‭and‬‭brings‬‭the‬‭eco‬ ‭closer‬ ‭to‬ ‭its‬ ‭optimal‬ ‭-‬ ‭rate.‬ ‭Ex:‬ ‭research‬ ‭tax‬ ‭credit‬ ‭aims‬ ‭to‬ ‭reduce‬ ‭the‬ ‭cost‬ ‭of‬ ‭R&D therefore increasing its private profitability‬ ‭ )‬ b ‭Collective goods:‬ ‭Featured by‬‭Samuelson‬‭:‬ ‭-Pure collective goods: non-rival, non-excludable.‬ ‭-Common goods: rival, non-excludable‬ ‭-Club goods: Non-rival, excludable‬ ‭-Private goods: rival, excludable.‬ I‭n‬‭the‬‭case‬‭of‬‭pure‬‭collective‬‭goods,‬‭State‬‭intervention‬‭is‬‭justified‬‭because‬‭of‬‭market‬‭failure‬‭-‬ ‭free-rider‬ ‭behavior‬ ‭which‬ ‭prevents‬ ‭the‬ ‭private‬ ‭O‬ ‭from‬ ‭responding‬ ‭to‬ ‭a‬ ‭social‬ ‭D‬ ‭which‬ ‭is‬ ‭nevertheless useful - no solvent D for these goods.‬ ‭However, certain services are desired by the population without them being willing to pay the price.‬ ‭ ow to take care of them?‬ H ‭-Pure collective goods: are few in number. Refer to the sovereign missions of the State (police,‬ ‭ efense, etc.) which must ensure their Y.‬ d ‭-Club goods: State can either produce itself or delegate to a private company -‬‭public service‬ ‭delegation‬‭(DSP).‬ ‭.‬ ‭c)‬ ‭Information asymmetry: see festus.‬ ‭ ) The limits of public intervention: The failures of the State:‬ 2 ‭State intervention aims to fight vs. Market failures. But public action can also be criticized. The‬ ‭State does not always do better than the market in terms of its capacity to facilitate the allocation‬ ‭of resources or to ensure the general interest.‬ ‭ -‬ 1 ‭The constraints of public intervention:‬ ‭Among the different balances, the State must promote the one which corresponds to the‬‭social‬ ‭optimum‬‭.‭B ‬ ut the choice procedure is complex and does‬‭not necessarily lead to the general‬ ‭interest.‬ ‭ )‬ a ‭The imperfections of collective choice:‬ ‭From individual optimum to social optimum‬ ‭Economic current of well-being is‬‭interested in the‬‭Q of maximizing‬‭satisfaction of‬‭1 individual‬ ‭(individual optimum) and by extension of a society (social optimum). Authors:‬‭Pigou‬‭,‭T ‬ he Economics‬ ‭of Welfare‬‭,‭1 ‬ 920‬‭And‬‭Pareto‬‭.‬ ‭Pareto: situation is optimal when it is no longer possible to improve the well-being of one individual‬ ‭without deteriorating that of at least one other. Any general equilibrium of pure and perfect‬ ‭conception is Paretian, because in equilibrium, each individual maximizes his utility.‬ -‭ If we can increase the well-being of one individual without changing that of others, then available‬ ‭resources are underutilized.‬ ‭-Does‬ ‭not‬ ‭indicate,‬ ‭among‬ ‭the‬ ‭different‬ ‭equilibria,‬ ‭which‬ ‭one‬ ‭should‬ ‭be‬ ‭preferred‬ ‭(perhaps‬ ‭unequal).‬ ‭It‬ ‭is‬ ‭at‬ ‭this‬ ‭level‬ ‭that‬ ‭political‬ ‭choices‬ ‭are‬ ‭made‬ ‭-‬‭the‬‭State‬‭must‬‭arbitrate‬‭between‬ ‭the different optima and choose the one closest to the social optimum.‬‭But how to choose?‬ ‭ he aggregation of individual preferences does not necessarily lead to the social optimum:‬ T ‭Summary: Agents have individual preferences - voting mechanism allows individual preferences‬ ‭to be aggregated into 1 collective preference just as the market mechanism allows preferences‬ ‭to be aggregated into a function of D.‬‭This collective‬‭preference (voting result) represents‬ ‭the demand for public goods.‬ -‭ ‬‭But an aggregate of individual choices does not necessarily‬‭lead to a coherent collective‬ ‭choice.‬‭This is what highlights the‬‭Condorcet paradox‬‭generalized‬‭bArrow which mq decision of‬ ‭the majority does not always lead to shared collective choice -‬‭impossibility theorem‬‭:‬‭Illustration:‬ ‭Society of 3 voters:‬ ‭ oter 1: A>B>C // Voter 2: B>C>A // Voter 3: C>A>B.‬ V ‭-2 voters (majority) prefer A to B and 2 voters prefer B to C. We should therefore have 1 majority of‬ ‭voters who prefer A to C. But a majority prefers C to A.‬ ‭-Individual choices are transitive‬‭,‭b ‬ ut not necessarily‬‭for collective choices.‬ ‭-Majority rule does not always make it possible to define a social optimum.‬ ‭ here are other procedures for determining the social optimum:‬ T ‭-Dictatorial method: 1 single individual decides the distribution of resources. Method rejected‬ ‭by Democrats and micro approach (agents are sovereign).‬ ‭-‬‭J. Rawls‬‭,‭A ‬ theory of justice‬‭,‬‭1971‬‭:we can prefer‬‭one distribution rather than another if it increases‬ ‭the lot of the poor‬ ‭(see Social Justice).‬ ‭-‬‭Kaldor‬‭And‬‭Hicks‬‭(nv welfare economics):‬‭The foundations‬‭of welfare economics‬‭,‭1 ‬ 939‬‭:reinterpret‬ ‭Pareto optimum - we can accept a drop in the utility of some people to the extent that the‬ ‭additional utility that results for other agents can allow them to compensate them. - Less restrictive‬ ‭criterion than Pareto.‬ ‭-‬‭Pigou‬‭:satisfaction provided by 1 new monetary unit‬‭is more likely to be poor than rich (decreasing‬ ‭Um). This justifies redistribution of income because it increases collective utility. However, transfers‬ ‭of income from the richest to the poorest must not have the effect of discouraging and therefore‬ ‭reducing Y. The question then concerns the determination of a threshold of - beyond which growth‬ ‭is reduced.‬ ‭ )‬ b ‭The contributions of political economy:‬ ‭-Questioning the natural‬‭kindness of‬‭public power.‬ ‭The Public Choice school challenges the hypothesis of a State maximizing social well-being:‬