Public Goods, Market Failures, and Economic Policy
Public Goods and Their Relation to Market Failures
This document relates the notion of public goods with other market failures and explains its application in economic policy. The study of public goods is even more interesting when discovering that most problems grouped under the name of market failures can be analyzed from this perspective. For example, externalities can be analyzed as public evils that are under one question: the insufficient provision of correlative public goods. The consequences of uncompetitive market structures, problems of imperfect information, the distribution of income, and price instability can also be analyzed under the theoretical framework of public goods. Its application in the economic realm is explained by the fact that the goal is the provision of various public goods that are not produced by the market, or are produced in insufficient quantities.
Interrelation Between Objectives
It is possible to summarize schematically the cases in which an interrelation between objectives can be given. There are three cases:
Fundamental Conflicts
Two or more objectives are mutually incompatible. The conflict manifests when achieving a certain degree of a determined target (Y1) implies the need to inevitably resign achieving another target (Y2).
Complementarity Relations
This would occur between two targets when achieving one of them simultaneously involves the possibility of achieving a major degree of the second.
Interdependence Between Objectives
Achieving the Y1 target has nothing to do with another target, Y2, which remains unchanged in its position. A practical example is not a clear successor.
Duality or Segmentation of Labor Markets
There are two types of labor markets:
Primary Labor Market
Characterized by job security, hierarchical job positions, technology and capital-intensive jobs, high wage levels, and requires a high level of training. This is dominated by internal markets and good jobs.
Secondary Labor Market
Characterized by precarious jobs, low wages, a deficient degree of training, little or no chance of professional promotion, and labor-intensive activities. These are considered bad jobs.
The Possibility of Public Policy in Globalization
Briefly explain the concepts of horizontal and vertical subsidiarity and their application in the three stages of public policy elaboration:
- Horizontal Subsidiarity: Delegates a part of the elaboration and execution of public policies (it cannot be a complete delegation) to private agents, in different levels of organization, that are in a better position to improve the legitimacy and efficiency of the measures.
- Vertical Subsidiarity: Delegates the capacity to elaborate policies to the public agents or institutions best placed to do so, independently of whether they are below or above the national government.
Application
Establishment
Identification and vertical subsidiarity play an important role, in a way that involves national, regional, and local levels. Horizontal subsidiarity allows the participation of relevant private agents in more than one of these jurisdictional levels.
Policy Formulation
Horizontal subsidiarity facilitates participation in agreements between national governments in attempts to expose bureaucratic and institutional rivalries that have little to do with the problems that may prevent a satisfactory resolution.
Policy Application
It should employ, with the greatest possible intention, vertical subsidiarity in the phase of identifying priorities.