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Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

Distinguished Lecture on Economics in Government: The Private Uses of Public Interests:... Abstract (Joseph Stiglitz was a member of the Council of Economic Advisers from 1993–95, and chairman of the CEA from 1995 through February 1997.) Today, I want to share with you some of my thoughts about the possibilities and limitations of government. These thoughts are focused around a simple question: Why is it so difficult to implement even Pareto improvements? Working in Washington, I quickly saw that although a few potential changes were strictly Pareto improvements, there were many other changes that would hurt only a small, narrowly defined group (for example, increasing the efficiency of the legal system might hurt lawyers). But if everyone except a narrowly defined special interest group could be shown to benefit, surely the change should be made. In practice, however, “almost everyone” was rarely sufficient in government policy-making and often such near-Pareto improvements did not occur. My major theme will be to provide a set of explanations for why this might be so. I shall put forward four hypotheses in this lecture, each of which provides part of the explanation for the failure in at least one instance of a proposed Pareto improvement. These hypotheses, like much of the literature on government failures, focus on the role of incentives: how misaligned incentives can induce government officials to take actions that are not, in any sense, in the public interest. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

Journal of Economic Perspectives , Volume 12 (2) – May 1, 1998

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Publisher
American Economic Association
Copyright
Copyright © 1998 by the American Economic Association
Subject
Lecture
ISSN
0895-3309
DOI
10.1257/jep.12.2.3
Publisher site
See Article on Publisher Site

Abstract

Abstract (Joseph Stiglitz was a member of the Council of Economic Advisers from 1993–95, and chairman of the CEA from 1995 through February 1997.) Today, I want to share with you some of my thoughts about the possibilities and limitations of government. These thoughts are focused around a simple question: Why is it so difficult to implement even Pareto improvements? Working in Washington, I quickly saw that although a few potential changes were strictly Pareto improvements, there were many other changes that would hurt only a small, narrowly defined group (for example, increasing the efficiency of the legal system might hurt lawyers). But if everyone except a narrowly defined special interest group could be shown to benefit, surely the change should be made. In practice, however, “almost everyone” was rarely sufficient in government policy-making and often such near-Pareto improvements did not occur. My major theme will be to provide a set of explanations for why this might be so. I shall put forward four hypotheses in this lecture, each of which provides part of the explanation for the failure in at least one instance of a proposed Pareto improvement. These hypotheses, like much of the literature on government failures, focus on the role of incentives: how misaligned incentives can induce government officials to take actions that are not, in any sense, in the public interest.

Journal

Journal of Economic PerspectivesAmerican Economic Association

Published: May 1, 1998

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