The Answer Is Transaction Costs Dam Shame: It's not easy being government
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Jun 18, 2024 The discussion highlights the nuanced failures of both markets and governments, with transaction costs at the forefront. It emphasizes how information asymmetries and incentive issues complicate governance. Delving into public choice theory, the conversation critiques the assumption of Pareto optimality within government actions. The hosts argue that flawed consumer behavior is exacerbated in voting populations. Finally, there's a fascinating exploration of Parkinson's Law, illustrating the gap between civil service numbers and productivity.
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Public Choice Theory
- Public choice theory challenges the idea of market failure by focusing on government failures.
- It questions whether governments possess the knowledge and incentives to effectively address market imperfections.
The Pretty Pig Problem
- Government failures, like market failures, are judged against an unrealistic standard of an omniscient, benevolent despot.
- This comparison is often unfair, but it highlights that all systems have flaws, and the focus should be on comparing realistic alternatives.
Government Information and Incentive Problems
- Governments face the same information asymmetry problems as markets, hindering their ability to make optimal decisions.
- State employees also have incentives that may not align with the public good, leading to further failures.
