On Gruber, Free Riders, and Political Economy

Quote 1: “The problems faced by the city of Dhaka illustrate the difficulties of effectively addressing the free rider problem through a private mechanism. Goods that suffer from this free rider problem are known in economics as public goods, and they are the focus of this chapter.” Gruber, Jonathan (2012-12-01). Public Finance and Public Policy (Page 183). Worth Publishers. Kindle Edition.

  • When I first read the bit about free riders in the chapter, it struck me that this is really just another way to look at a positive externality. To make sure I wasn’t off in my logic I did a quick Google search. Sure enough, our (GMU’s) own Tyler Cowen says precisely the same thing in a top search result:
  • Because free riders are positive externalities, it seems to follow that the Coasian action of the market can resolve to the effecient outcome, with the only apparent exception being where transaction costs are large.
  • “Goods that suffer from the Free Rider Problem” is also not at all the usual definition of a Public Good. This framework screams, “We have a problem, and we need the government to step in a solve it!” Later in the chapter a more rigorous look a public goods is given, but the stage seems to have already been set in a way that strongly predetermines a foregone conclusion. Later in the chapter Coase is cited as well as a source of historical evidence, not just theoretical, to show that private markets provide public goods.

Quote 2: “Our discussion of political economy starts with the example of a government that is able to optimally determine the level of public goods to provide through the unanimous consent of its citizens. It does so through Lindahl pricing, a system by which individuals report their willingness to pay for the next unit of a public good, and the government aggregates those willingnesses to form an overall measure of the social benefit from that next unit of public good.” Gruber, Jonathan (2012-12-01). Public Finance and Public Policy (Page 231). Worth Publishers. Kindle Edition.

  • I think the chapter does a great job describing the basics of how political economy works, including problems with Lindahl pricing, but there is no consideration of the free market determination of law. Couldn’t the market pricing system produce more accurate prices than a Lindahl pricing system? Wouldn’t a direct democracy where actors had their votes weighted by their competency produce more effecient results than a system which weights them equally? Isn’t this the same as the free market price system, where a vote is simply another form of currency? The last interesting thought I had is whether our political system would improve if voters were allowed to temporarily transfer, buy, or sell their right to vote in a certain year or election.
  • Later, Arrow’s Impossibility Theorem is discussed. Doesn’t polycentric law with an equilibrium in the market for law solve this problem?

Quote 3: “This view suggests that the only thing keeping corruption in check is electoral accountability, the ability of voters to throw out corrupt regimes.” Gruber, Jonathan (2012-12-01). Public Finance and Public Policy (Page 258). Worth Publishers. Kindle Edition.

  • There seems to be a fundamental issue in electing politicians in the following way: With large terms in office comes the opportunity for both long-term focused politicians, a good thing, but also the potential issue of being able to throw out politicians who start acting against the public interest.
  • I also think that politicians seem most concerned with representation while they are on the campaign trail. So keeping them on the trail would make them continuously representation-focused, but also cause them to disregard the long-run implications of their policy actions.
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