Xia Li (Lisa)
It is widely agreed in the field of pubic studies that government bodies and officials play a key and central role in developing public policies. One heated topic being discussed is the nature and the proper role of government in the market activities. Although the scholars of the readings this week analyze the rationale of government intervention from different points of view, they all reach an agreement on the necessity of government intervention.
The lead precis has well presented the main arguments that the authors made about government intervention. I would like take a further step to critically articulate the logic of the government intervention being discussed in each reading. Zerbe and McCurdy (1999) call for a more reliable guide of understanding issues of government intervention by demonstrating the conceptual and empirical limitations of the market failure concept and introducing the transaction costs approach. The key question in public policy analysis is no longer about utilizing the market failure concept to prove the legitimacy of government intervention in marketplace, but rather about focusing on the transaction costs of government laws and actions. I agree that the concept of transaction cost provides a more well-grounded conceptual framework for government intervention analysis, however, I think the cases that show market failure analysis predicts the wrong outcome are not strong and comprehensive enough to disqualify market failure concept as a solid buttress for government intervention. Either the cases of the lighthouse or bees and crops serves as evidence that markets can successfully deal with the issues of potential externalities without or with less government intervention. Yet, what about the cases that markets fail to deal with the externalities? Do the authors purposefully exclude the cases that market fail concept leads to correct outcomes to support their conclusion “The Failure of Market Failure”?
Ostrom (2000) shares a similar problem with Zerbe and Mrcurdy in choosing the cases to support her arguments. Ostrom adopts evolutionary theory and evidence from laboratory experiments and field studies to argue that collective actions situations can be resolved successfully with the propensity to cooperate and growth of social norms. Furthermore, she claims that several studies also show external rules and monitoring can crowd out cooperative behavior. Again, I cannot deny that there are facts that some collective action problems are solved by self-organized and cooperated resource regimes who may outperform government-owned resource regimes, my concern is in what situations and conditions can these cases happen? Can a norm of reciprocity and the willingness to restrict their own use of a public good be efficient to solve collective action problems which are broader and affect not only a small group of people or community?
Joseph Stiglitz (1998) takes a more inclusive viewpoint to examine the role of government intervention. He introduces examples of successful Pareto improvements and reasons that potential Pareto improvements fail, with explanations from both market failure and transaction cost concepts. He also identifies the key elements – openness, transparency, and democracy with more participation – in policy making process are vital to achieve the Pareto improvements.
Above all, the discussion on the rationale of the government intervention sheds light on how and what the government should do, rather than whether we need it or not. Government should intervene when the costs of intervention are less than the benefits. To fully make benefits of social norms and cooperative behavior, government intervention can play roles in making public polices that enhance such values. It is possible that symbolic policies can achieve these goals.
The question posted in the précis speaks highly of the importance of public participation in public policy, which I strongly agree with. Public participation ensures openness, transparency and democracy in public policy making process and government intervention, as what Stiglitz mentioned. The reality is, however, public wisdom has long been underestimated. Moreover, there is no systematic mechanism to assure public participation or the mechanism is not paid attention enough. In my opinion, what we as scholars should do is to engage with the public, get into the field, and energize the potentials of the public who believe their voice does matter and they have to power to make a change.
References:
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.
Ostrom, Elinor, “Collective Action and the Evolution of Social Norms,” Journal of Economic Perspectives, 14(3), 2000.
The lead precis has well presented the main arguments that the authors made about government intervention. I would like take a further step to critically articulate the logic of the government intervention being discussed in each reading. Zerbe and McCurdy (1999) call for a more reliable guide of understanding issues of government intervention by demonstrating the conceptual and empirical limitations of the market failure concept and introducing the transaction costs approach. The key question in public policy analysis is no longer about utilizing the market failure concept to prove the legitimacy of government intervention in marketplace, but rather about focusing on the transaction costs of government laws and actions. I agree that the concept of transaction cost provides a more well-grounded conceptual framework for government intervention analysis, however, I think the cases that show market failure analysis predicts the wrong outcome are not strong and comprehensive enough to disqualify market failure concept as a solid buttress for government intervention. Either the cases of the lighthouse or bees and crops serves as evidence that markets can successfully deal with the issues of potential externalities without or with less government intervention. Yet, what about the cases that markets fail to deal with the externalities? Do the authors purposefully exclude the cases that market fail concept leads to correct outcomes to support their conclusion “The Failure of Market Failure”?
Ostrom (2000) shares a similar problem with Zerbe and Mrcurdy in choosing the cases to support her arguments. Ostrom adopts evolutionary theory and evidence from laboratory experiments and field studies to argue that collective actions situations can be resolved successfully with the propensity to cooperate and growth of social norms. Furthermore, she claims that several studies also show external rules and monitoring can crowd out cooperative behavior. Again, I cannot deny that there are facts that some collective action problems are solved by self-organized and cooperated resource regimes who may outperform government-owned resource regimes, my concern is in what situations and conditions can these cases happen? Can a norm of reciprocity and the willingness to restrict their own use of a public good be efficient to solve collective action problems which are broader and affect not only a small group of people or community?
Joseph Stiglitz (1998) takes a more inclusive viewpoint to examine the role of government intervention. He introduces examples of successful Pareto improvements and reasons that potential Pareto improvements fail, with explanations from both market failure and transaction cost concepts. He also identifies the key elements – openness, transparency, and democracy with more participation – in policy making process are vital to achieve the Pareto improvements.
Above all, the discussion on the rationale of the government intervention sheds light on how and what the government should do, rather than whether we need it or not. Government should intervene when the costs of intervention are less than the benefits. To fully make benefits of social norms and cooperative behavior, government intervention can play roles in making public polices that enhance such values. It is possible that symbolic policies can achieve these goals.
The question posted in the précis speaks highly of the importance of public participation in public policy, which I strongly agree with. Public participation ensures openness, transparency and democracy in public policy making process and government intervention, as what Stiglitz mentioned. The reality is, however, public wisdom has long been underestimated. Moreover, there is no systematic mechanism to assure public participation or the mechanism is not paid attention enough. In my opinion, what we as scholars should do is to engage with the public, get into the field, and energize the potentials of the public who believe their voice does matter and they have to power to make a change.
References:
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.
Ostrom, Elinor, “Collective Action and the Evolution of Social Norms,” Journal of Economic Perspectives, 14(3), 2000.