This course offers an introduction into the public economics theory. It does not aspire to cover theories of taxation, public expenditures, regulation etc. at length and in-depth. Rather, our ambition is to give a bird's-eye view of central themes of public economics and related disciplines, and teach concepts, logic, and ideas, rather than methods of analysis, which would require an entirely different course format. Our choice of topics covered by the course reflects a trade-off between salience and centrality, on the one hand, and suitability for a brief online introductory course, on the other. The course content is neither comprehensive (which would be a "mission impossible" for virtually any public economics course"), nor representative of other such courses. With these limitations and caveats in mind, we encourage our students to continue their public economics studies in a more regular fashion, and see our role inter alia in motivating interest in such "continued education". The central theme of the course is the role of government as a mechanism of resource allocation which complements and augments markets. Governments are viewed as public agencies set to correct market failures. Such agencies however are prone to failures of their own, and hence markets and governments are two imperfect alternatives. We deal with government's limitations, with particular emphasis on those that have to do with informational asymmetry, limited administrative capacity, and imperfect accountability to society. Otherwise the course's man themes are economics of taxation, regulation, politics of public economics, incentives in government, and government vis-à-vis (civil) society.
6.4. Let's Do It Ourselves?
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来自 National Research University Higher School of Economics 的课程
Public Economics
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从本节课中
Government and Society
In this final lecture of the course we discuss the role of society in public sector economics. We start with the notion of social capital and show its duality: its substitutional and complementary relations to government. Our first illustration of the interplay between government and social capital is philanthropy. Then we demonstrate how dual role of social capital gives rise to the so-called “paradox of social capital”. Then we illustrate the salience of civic culture for good public sector governance by models linking government performance to what citizens expect from their governments. In the next part of the lecture, we show how communities can respond to a lack of government-supplied public goods and services by apolitical self-organization in order to substitute for what they haven’t received from the government. The final episode of the lecture explores the link between social capital and the size of government (public sector).
与讲师见面
Leonid PolishchukProfessor
Department of Applied Economics
[SOUND]
Now I would like to discuss with you the interplay of two
different types of social capital which are both relevant for
the relations between government and society.
Suppose that for whatever reasons the negligence, corruption,
anything else government services are insufficient.
They are of poor quality and insufficient quantity.
So, there are some public goods and services lacking at the grassroots.
And suppose that there is a special type of social capital which enables
local communities to pool their resources to supply such public goods and
services on their own.
And, therefore, to make up for government's negligence, corruptions, and
other reasons of not properly performing their government's duties.
You can think about, for example, the peoples being dissatisfied with police
service, and, as a result, they form their own vigilante teams to do police work.
You can think about some elements of local infrastructure being missed and
being instead constructed and supplied by local efforts.
So on and so forth.
So, this grassroots social capital helps communities to make up for
government failures.
Another type of social capital that we just discussed before
is of course civic culture.
And these two types of social capital represent two options that were first
described by the late US political scientist Hirschman,
namely the options of exit and the options of voice.
In politics voice means that if you're dissatisfied with what governments do
you respond by political action.
You respond by voting, by protests, by rallies, by other means to use
the opportunities provided by political system to demand better performance
from government. Exit means something quite opposite here: exit politics
and seek private solutions that do not involve any political means.
In our case, exit would be indeed this supply of missing public goods and
services
at the grassroots using grassroots social capital.
Civic culture and grassroots social capital markedly differ from each other,
and they result in markedly different outcomes for
the quality of governments and social welfare.
And again, as always in this course,
here is a simple model that describes this situation.
Suppose that there is a predatory government, and
this government attempts to extract some wealth from the society.
Let's denote the measure of this wealth extraction by D capital.
And that could happen by various means:
by means of predatory taxation, diversion of public funds,
theft from the government,
so on and so forth.
And, as it was the case in the Barry Weingast model, if D units of wealth
are extracted from the society, social losses are, in fact, going to be higher.
They're going to be C0(D) and this is greater than D.
And the difference between C0(D) and D is by now familiar
deadweight loss of taxation, another means of wealth extraction.
Now what the societies can do to respond to this predation is to accommodate
this predation by doing something at the grassroots by replacing missing goods and
services that the government was supposed to provide.
Of course, the damage will still be there because if this wealth is to be
extracted from this society, the social losses will never be smaller than D.
But if there is a difference between C0(D) and D,
this difference hopefully can be reduced by some grassroots efforts.
And I will be assuming that indeed some parts of this society,
some communities, by means of self-organization, by
using the grassroots social capital that we just discussed,
are able to reduce the losses from C0(D) to C1(D).
And, of course, C1(D) > D.
Let's have a look at what social welfare will be in that case.
It will be W equals to the initial wealth W0 before any government's expropriation.
Now, some communities, and suppose that the share of this communities is omega,
are able by means of self organization to reduce the losses down to C1(D).
So, we deduct omega times C1(D),
whereas the rest of the society remains completely defenseless
[INAUDIBLE] is unable to accommodate government's predation at the grassroots
and suffer heavy losses C0(D). And
the share of this defenseless portion of the society is 1 minus omega.
So, let's consider omega as a measure of this grassroots social capital.
And this is one of the variables that affects some governments decisions
and social welfare.
Let's see what government actions will be.
Recall a model that [INAUDIBLE] can see again in one of the previous lectures whereby governments
are partly accountable to the society and, as a result, they maximize a weighted
sum of their dread gains (in our case D) and social welfare.
And the weight which is assigned to social welfare is a measure
of government's accountability to its society.
And as we were arguing before, government's accountability to the society
is a function of civic culture.
So, for simplicity let's assume that alpha is a measure of civic culture.
We have then two types of social capital: one of civic culture measured by alpha
and another one is grassroots social capital measured by omega.
And we have this maximization problem.
And the solution of this problem will be then, of course, a function of these two
stocks of social capital:
civic culture and social capital available at the grassroots.
The comparative statics analysis of this model is very simple, and again
students can easily do it on their own, and this leads to predictable conclusions.
Conclusion number one – government separation D declines in alpha
quite naturally because alpha is a measure of government accountability,
and the more accountable to the society the government is,
the more politically costly for such government will be predatory behavior.
And, as a result, the scale of predatory behavior is inversely related to alpha.
And by almost the same reasoning the level of government
predation D will be monitonically increasing in omega.
Why? Well, because the society is able to
self-accommodate and make it less costly to itself
in the case government redistributes wealth from the society. And
that certainly reduces government's accountability.
That reduces heat, pain, pressure on the government because
government officials are aware that the society will
find means to compensate the negative consequences of the misbehavior.
And, therefore, the amount of diverging of wealth from the society D
is a function that declines in civic culture, and
a function that increases in grassroots social capital.
Therefore, we can conclude that if this society has
considerable stock of grassroots social capital, and
if it's accustomed to picking up where governments left off for making up for
governments lack of performance at the grassroots, then this society
will have lower levels of public services and public goods then otherwise.
So, the input of this second type of social capital, grassroots social capital,
for the quality of governance is negative.
And this table summarizes what we've learned so far.
We have two types of social capital:
one is civic culture and one is grassroots
social capital. And our analysis leads to the following conclusion.
As far as quality of governance is concerned, civic culture has a positive impact
and grassroots social capital has a negative impact.
More importantly, and somewhat less obviously, both types of social capital –
civic culture and grassroots social capital – affects social welfare.
And the question is how they do it?
In the case of civic culture the answer is simple.
The effect is positive and this is pretty obvious if we have a look at this
formula or, perhaps, even better at this one,
the high level of civic culture leads to lower D's and,
as a result, the society is better off.
Government predation is much lower than it would have been otherwise.
However, when it comes to grassroots social capital,
the situation is not obvious because there are two effects:
there is a direct effect at the grassroots and
there is a political effect.
As far as the political effect is concerned, as we saw grassroots social
capital creates disincentives for governments to deliver their services,
and, as a result, government predation increases in size and the society is worse off.
So, the sign of the political effect for social welfare is negative.
Grassroots social capital has also direct effect because it certainly
reduces social losses from C0(D) down to C1(D).
And, therefore, the direct effect of grassroots social capital
is then positive.
And the question is which of these two effects – direct which is positive and
indirect, political which is negative – is stronger?
And the answer that it depends on the stock of civic culture, and
it depends on the stock of civic culture as follows.
If there is a high level of civic culture,
in that case there is none or almost none of government predation, and
in that case grassroots social capital is idled, it's not really required
because the government is doing what it is expected, and, as a result,
there is no need to make up for what the government is not properly done.
And in that case, for high level of civic culture
we could expect that the social payoff to grassroots social capital
is going to be zero.
On the other hand, when there is almost no civic culture,
government predation is rampant.
Government is at large.
And the society can at least defend itself at the grassroots
by mobilizing its grassroots social capital.
So, we can expect that for low levels of civic culture the payoff to
grassroots social capital in terms of social welfare is going to be positive.
However, one can show that at intermediate level
of civic culture when there is some government accountability but
not enough to completely rule out government predation,
grassroots social capital crowds out civic culture.
And the overall payoff to the grassroots social capital
in that case becomes negative.
And I want to show you a couple of diagrams which illustrate
some calibrations of the above general model that I presented to you.
This diagram shows us the impact of two types of social capital: civil culture
measured along this axis and grassroots social capital measured along this axis.
Their impact to the abuse of power, along the vertical axis we measure D, we measure
the scale of the abuse of power. So what we measured along the vertical axis
is inversely related to the quality of governments.
And what we see here is that an increase in
alpha from 0 to 1 indeed decreases the abuse of power.
So that, as expected, civic culture improves the quality of governments.
And, at the same time, an increase in grassroots social capital again,
as we observed, diminishes government's accountability,
give government officials a sense of complacency and then the higher level of
grassroots social capital is associated with greater abuse of power.
And this is something that illustrates the impact of civic culture in
grassroots social capital for the quality of governance.
As far as social welfare is concerned,
the very same calibration provides a different picture.
And in this picture we see that here
we measure along the vertical axis social welfare, and horizontal axes are the same.
The first one measures grassroots social capital, and
this one measures civic culture.
And what we see here is that as civic culture improves social welfare,
no matter what is the level of grassroots social capital,
we have this increase in social welfare as a function of growing alpha.
As far as social capital is concerned, what we see here is that when alpha equals
1 which in this case is 100% government accountability,
a very high stock of civic culture, then social welfare is the same.
It does not depend on grass roots social capital.
When alpha equals 0, no civic culture, defenseless society,
the social welfare increases in grassroots social capital.
And again, this is something which is consistent with our intuition.
Here is an intermediate level of civic culture, and we see that at this
intermediate level social welfare indeed decreases as a function of grassroots
social capital. And this is the crowding out effect that I described to you.
[SOUND]
