by José Gálvez Contreras, Ph.D. Student in Public and Urban Policy
Political Economy and Public Policy Analysis II, The New School University
Skimming through the literature on the economic paradigm and rationale of government intervention, is not hard to detect that extensive research has been conducted and a lot of light has been shed on that area. Public policy has always been a “hot potato” for governments, as it seeks to provide for the needs of its citizens and solutions to the problems of collective action. Public policy is meant to improve the well-being of citizens. Governments-which take the initiative of any public policy making- usually act in an authoritative manner because they serve as gatekeepers of the laws and constitution, and at the same time are active actors of the market in order to secure the best conditions before they make decisions. This discussion observes the advantages and drawbacks of government intervention and explains what collective action is and why is it useful for successful public policy making. When social actors align with the idea of public good -- including the government -- effective public policy maybe possible.
Why is then collective action the right path to successful public policy? Does all theory embrace collective action or there is a certain degree of disagreement? A lot of ink has been spent to explain governmental efficiency and purpose. On one side, Joseph Stiglitz proclaims that what is necessary for solid public policy, is governmental transparency and more democratic and increased public participation. Stiglitz argues, that the government in a constant search for achieving optimum outcomes. Furthermore, he discusses some hypotheses of why Pareto improvement failed and, he mainly focuses on how imperfect information affects all strata of governmental decision making. His conclusions are supportive of government intervention and he stresses on how this can become more efficient.
Despite the fact that, also Zerbe and McCurdly agree with Stiglitz that government intervention is useful, their argument differs significantly. What they add on it, is that what renders a government efficient, is transaction costs. They propose that the primary concern of governments should be achieving the lowest transaction costs. Since externalities are ubiquitous, using them as a basis for intervention may be arbitrary. They suggest that anytime the government reduces private transaction costs or its own cost of provision, it should do so, regardless of whether or not an externality exists. I think what is essential in the approach that Zerbe and McCurdy take, is that it aims to provide solutions for traditional market failures and that it utilizes government’s ability to decrease transaction costs through its own power of coercion. However, they fail to clarify or they do not offer any pattern that the government should follow in order to achieve optimum results.
My understanding of the economic paradigm and support for collective action agrees with Elinor Ostrom’s approach on problems of collective action and social norms’ formation. Ostrom uses social experiment research to demonstrate that social structures and interactions contribute to the effectiveness of collective action. She assumes multiple types of players--"rational egoists," as well as "conditional cooperators" and "willing punishers"--in models of nonmarket behavior. Contextual variables that enhance knowledge about past behavior assist in explaining the origin of collective action. Among these important contextual variables are types of goods, types of groups, and rules that groups use to provide and allocate goods. In an analogous manner, the same framework can be applied to government and public policy, proving that collective action has a real impact on policy making and, thus can make a meaningful contribution to the economic paradigm.
The literature clearly indicates the need for proactive government intervention. Stiglitz for example, claims that open and democratic systems result in achieving better public policy outcomes. Zerbe and McCurdy build on that argument by adding that without a functioning and proactive government, society’s transaction costs would be too high. On the other side, while Elinor Ostrom does not explicitly support government intervention, nevertheless government still has an essential part of the economic system. These authors provide us with different arguments on how and when the government has an impact on the public policy. However, it is only Olstrom that implies that collective action can play a part in that. The problem that remains to be solved is how the existing theoretical basis can serve as complementary to public participation, which in my opinion this a crucial element of successful public policy making. So, the question that seeks an answer is how we can overcome what the theory indicts and start involving the public in an active manner. Is our current system strong enough or it begs for re-visiting?
Sources:
Ostrom, Elinor, “Policy Analysis in the Future of Good Societies,” The Good Society, 11(1), 2002.
Stiglitz, Joseph, “The Private Uses of Public Interests: Incentives and Institutions”, Journal of Economic Perspectives, 12(2), 1998.
Zerbe Jr., Richard O. and Howard E. McCurdy, “The Failure of Market Failure,” Journal of Policy Analysis and Management, 18(4), 1999.
Political Economy and Public Policy Analysis II, The New School University
Skimming through the literature on the economic paradigm and rationale of government intervention, is not hard to detect that extensive research has been conducted and a lot of light has been shed on that area. Public policy has always been a “hot potato” for governments, as it seeks to provide for the needs of its citizens and solutions to the problems of collective action. Public policy is meant to improve the well-being of citizens. Governments-which take the initiative of any public policy making- usually act in an authoritative manner because they serve as gatekeepers of the laws and constitution, and at the same time are active actors of the market in order to secure the best conditions before they make decisions. This discussion observes the advantages and drawbacks of government intervention and explains what collective action is and why is it useful for successful public policy making. When social actors align with the idea of public good -- including the government -- effective public policy maybe possible.
Why is then collective action the right path to successful public policy? Does all theory embrace collective action or there is a certain degree of disagreement? A lot of ink has been spent to explain governmental efficiency and purpose. On one side, Joseph Stiglitz proclaims that what is necessary for solid public policy, is governmental transparency and more democratic and increased public participation. Stiglitz argues, that the government in a constant search for achieving optimum outcomes. Furthermore, he discusses some hypotheses of why Pareto improvement failed and, he mainly focuses on how imperfect information affects all strata of governmental decision making. His conclusions are supportive of government intervention and he stresses on how this can become more efficient.
Despite the fact that, also Zerbe and McCurdly agree with Stiglitz that government intervention is useful, their argument differs significantly. What they add on it, is that what renders a government efficient, is transaction costs. They propose that the primary concern of governments should be achieving the lowest transaction costs. Since externalities are ubiquitous, using them as a basis for intervention may be arbitrary. They suggest that anytime the government reduces private transaction costs or its own cost of provision, it should do so, regardless of whether or not an externality exists. I think what is essential in the approach that Zerbe and McCurdy take, is that it aims to provide solutions for traditional market failures and that it utilizes government’s ability to decrease transaction costs through its own power of coercion. However, they fail to clarify or they do not offer any pattern that the government should follow in order to achieve optimum results.
My understanding of the economic paradigm and support for collective action agrees with Elinor Ostrom’s approach on problems of collective action and social norms’ formation. Ostrom uses social experiment research to demonstrate that social structures and interactions contribute to the effectiveness of collective action. She assumes multiple types of players--"rational egoists," as well as "conditional cooperators" and "willing punishers"--in models of nonmarket behavior. Contextual variables that enhance knowledge about past behavior assist in explaining the origin of collective action. Among these important contextual variables are types of goods, types of groups, and rules that groups use to provide and allocate goods. In an analogous manner, the same framework can be applied to government and public policy, proving that collective action has a real impact on policy making and, thus can make a meaningful contribution to the economic paradigm.
The literature clearly indicates the need for proactive government intervention. Stiglitz for example, claims that open and democratic systems result in achieving better public policy outcomes. Zerbe and McCurdy build on that argument by adding that without a functioning and proactive government, society’s transaction costs would be too high. On the other side, while Elinor Ostrom does not explicitly support government intervention, nevertheless government still has an essential part of the economic system. These authors provide us with different arguments on how and when the government has an impact on the public policy. However, it is only Olstrom that implies that collective action can play a part in that. The problem that remains to be solved is how the existing theoretical basis can serve as complementary to public participation, which in my opinion this a crucial element of successful public policy making. So, the question that seeks an answer is how we can overcome what the theory indicts and start involving the public in an active manner. Is our current system strong enough or it begs for re-visiting?
Sources:
Ostrom, Elinor, “Policy Analysis in the Future of Good Societies,” The Good Society, 11(1), 2002.
Stiglitz, Joseph, “The Private Uses of Public Interests: Incentives and Institutions”, Journal of Economic Perspectives, 12(2), 1998.
Zerbe Jr., Richard O. and Howard E. McCurdy, “The Failure of Market Failure,” Journal of Policy Analysis and Management, 18(4), 1999.