om igo unsn 8 uma ppd ucmsooe 24 1p ape adumsse 2 2 uae Ary ue SvouaBoxe pax se roe soup FempLasp ue pangaciun oxeypq eye ur uedoqyed yeqy—jopouraanadao> suondumsse yeurwepuny sow a Jo ons Sumapeston 4q wifoq jy = 03 ep} soo jesudar—somprussevoReAOp peo ee omar aaryyadiuor ayy fo suoHUgMUrT 42430 Aotod Qn 107 saeuoyey ~jupayps puewap pauopu oy Hojpq sy ampENpS pact ap pantzopanm s zeusuo> e peg uOREMS eW s80j ses HOSA MOHS “F eae aney proses ap nus suomP OO IHR Dood iaraqad ap wove pose ffs» open saya Soposes my suojgod poo8 qn doe uy apace voNSoe Oa 5 mHa ar Us Coneptual Foundations or Profle Analysis Thin Markets: Few Sellers or Few Buyers arcana hare compete when ay act ef the nr decisions do not affect prices. In ober words, they take prices as given. It is e- sonable to assume competitive behavior when no seller acount for noticeable frac- tianof supply and no buyer accounts fora noticeable fraction of demand, which’s usualy the case when there are many buyersand many sles. In thn makes,mar- ‘ets with either few seller or few buyers imperfect competion can ea to prices that cfr fom the competitive eqilium and hence reslt in Paeto-inelficient allocations of inputs and goods. jered one important exam ‘go supplies. The rsulling allocation of reals, however, wll not necessary be ‘more efficient than that without the exercise of monopsony power. Tetermediate bose cases of perfect competition and manopoly sagopa or more firms account fora significant fraction of ct competition often serves a rationale for public intervention “otc apelin opt bere sbre compete. Aner onesies sab seas te vay denen oe pace feos Se br sample Dl sna Do Date Ma Sais Te Eons of Slay, Sey Steer Thay Ener (Chicago Rar Maly 170, 8. Same conuminhae pel tr, per, dest ery end cle: rate Sewof is aqunen Gein Sars Pe Pas ew Yor clan, 80,3 “xara ep Ws nt Yeron méhe ; ultimo ray, (Combe, MA: MET res DC) Foran ada ean ead ‘ol The Tyo ars Catan (Cambri MA MIT Pres 58). E Haring Eamon (Chapter 6 Rationales for Public Policy Other Limitations 118 The Source and Acceptability of Preferences veloped preferences at birth, or preferences ate rfipationin Soy ety ete eee ay oly dep econamic exchange or violation ofthe assumption of ied preferences, pend what goes enn he economic works aaa Endogenous Preferences italy the pcepton ht prefeces can be changed as en hes for mry pe ols The me at " ale aly involved sguners ht wat tractinocreion oul engage nba at Tied cons once nor frees had nee ative eft Sc so hich ne sapped supplement the formation of recused eth Enter ists nr romanian Fe etl Rie 20) hs B18 a ccnp moh net cary Moe Dalen “Coping wh The apie Ug dn oon Ree an ea eee Cetsc st su ma ssp poe sr ne NE HN PO FN, eats cn se pons she) ouapepOU, ayy wo ose ag asueo gay > uouo>e Seago Tena, 8 ee neon means OS a satan poraap open xe 0p Sey po spn aces food end ose aeponzed ae OL dana se yon spd ata wg SSSA SS ereRtanb Beadse samp ut uso aus ay FAREED sty ge af ue poodoun 386 omus Par ofthe acceptability of the cesonomic impacts and risks, respondent of the accept of ths siting rules affocted their wilingness to acc Perceived faimess was the major determinant. Legitimacy of Preferences eneral question about preferences: Are all fecommpettive model we treatall preferences, all woul that prohibit us fom taking ou (Ofcourse we can think of hough here 2 consents favoring prob the behavior, the question sil remains suasion is more appropriate Reprise of Preference Problems Preferences in the real word are nether: {nthe competitive model, The extent to which from athiving Proce remains wee, - nize the limitations. assumptions, our {ng of preferences should lend us to tread carefully in using perceived problems with dem to justify public pol Capler6 Rationales for Pubic Paliy Oe Limits 118 ‘The Problem of Uncertainty gre conceptual dificult, we can extend the basic comps incorporate multiple periods and uncertainty: Instead of assuming goods under all contin ‘be possible to buy actuarially fir insurance so thateach constant 0 matter what stato of nature actually occurs when the premium exacily equals the expected pay- couse, to know the expeced payout, one must know the probablites ofeach he cman pe ct agin cogent eu ue eugh 0 of tir prtbites om exper For ams, by Yer lag rsmber of di an secre pedictons ofthe probaty casualty insurance allow reliable est acdtional premium above th acral fir price may also demanded tutions in which individual risks are at independent, because afer pooling, Ae bisc mod isin the pit of Knuth. snd Gerad Dees, "Bx tumforsConpontive Examen" Erwmerin 29) 14 1593SY POF HY ELIE} eu ss088nsTosomoy Sensowane pur ABojoyksd aanmBoo ve “Ehkooo poq ayy ou Sora ao SOAP ong spur jn paso ded pasa seg os ompuesapeoq un dag sss 5s tg ne me OS emg, EID PG by aor racy ome sh “gpa eqs ssn aor, poe 2A OT ad ud SST A Saeed Siceeney | pmengen sepne see mes AB TOL SA Feri ony ma fans weg ey wee Pm EAI ORRIN a see [3% nyo ssc HS ARH AUSTEN sot ese mane ea ed ouesnsr ng soap ty ES, 2S sur cnoi ap joesne np qo) APP. Sago roar sy 300 ts sonia asa U2 a pus sanpgenand aaa 2 Supansuasaprup peo ‘puvzUH [HON suoyoopas asioopy says aeansu] aeyeUOOU ays aqua pron wot no puso oe tnd ap fous pia Dos enone “squaproe apiqowoune are Bapod poy sameegd ago NDPIOSP TPE ATT any eg a DHME IS EEE OOH py wg nf surg edu)| saz —_Pan Is Concptual Foundations for Preble Analysis people ten to make several systematic errors in assessing probabilities” In order {fo deal economically with a great varity of information in ple tend to employ wists (ules of thumb) that sometimes lead o correct dec- Fons bat nevertheless involve predictable biases. For instance it appears that people ‘often estimate the probabilities of events by the ease with which instances or farences canbe brought to ind Recall however, depends ona numberof f- of indivical responses ors Laboratory experiments have identified several sit ‘Sonsin which he expected ity hypothesis seems tobe systematically violated. Al ‘hough individuals end to underestimate theprobbiites of very inrequent events, forinetance, hey tend tobe ovely sensitive to smal changes inthe prbebiites of rare events relative fo the predictors ofthe expected utility hypotnens* These findings shave led cognitive psychologists an economiss tobegin to explore oes formulations foflbehavios under uncertainty: As yet, the fll implications ofthe alternative far ‘ulations for our evaluation of economic efficiency remain unclear scant re ofthese sues ce Mask Machin, "Expres Ui Aral wir ‘ute edepenenes Rn Exons 0) 962 27-32, review of miso! eo Chapter 6: Rationales for Publi Poly: Other Limitations 328 More General Issues Related to the Ratic of Decision Making se sand Amos Tversk, prospec theory tind sitso sugges tat indivi deviate fn ssl masnzaton ine loving rete woe yea de a reference pont, hich, it hm, based on some nation ofthe stats quo (ence hiss sometimes called the stats uo ee ot Tossa Soret ‘more commonly, the enn? y exhibit prefera larger probable! cen araheerte prefer pebbles osm as when he expe vac he Figure 61 usta fl igure es the shape ofthe utility function assumed by prospect Us ‘igure 61 Untty Function Showing Loss Aversion “Yuck Knetsch argues thei the reference point is deter a ne eae ns eer eon my coccinea meee rma omen cre Soe ae A cee msi(e's 99 9 eo went a as su. inn pvt na IN spradop wre syepounosse oy neu UTS a ag wo spud wmnagmbs aanadinoo a 7 aus eouauonp a $0 35n| <2} summa pen re Sinping fq semua Tog 30} punwasp aup ‘umraqiymbs up (sox 30 afer Sy SUTTER YUNA syounyy jopdey aero yoy sey sovsaad un o ae sy pn Swoseg fq yo 909 uy yeu pico unsung ways ovarajad Bur 30 sood ae ane. -peuvsoj woydumsuvo yams $1 saopepury xp ‘pa gana sof sqmenng 9 ade apfmay or 0 arles for Publi Paicy tie. Pr Cnt etn fr Pris ays w consumers take adequate account ofthe : eaten One apo cope tat gr fe eel ey a r lara ele, any clos certhe welfare of out children and our grandctildre han attempting ian on beque redo natin nomic decisions. Rat one generation tothe ne Most forms of capital do, of course, dept needs maintenance to Kee productive rowing wealth of successive generations in countries "The underinvestment cv Cosnpton evita Consmpion en "ttm cee con il ary Pail (Cag. vec Dat tng “Te Fora anv ofthese cae; Tonos of Beaute tage theleve fervor quality we begunug ue ap om apes J ny aupadsng LORE! ID SAG ‘panna, euadaepy se pO sarge HNO AIOE NANO NE ‘e meno soem 0 une langy Sou ea seroape nawp Supnpat soy sanvyed saudad your 4p 20 oppo stourng jo “pe ype oto eu SRD Oo MI) opdumsuoo ua ejanour pur feooy ay ong suossonas uadurep oy aqe.0q deus uruan0’ as) 10 asm apuaefimouare aap ut Louaryou sep ‘ar end pazmeuapum pue soqe paojdasoun suowssaoe Bucy uorssenax pue vvorsuedie jo spp/o ufnony 08 0; sp vonage orand qureulp s dimous au. SeDIOd 308 Jo 08 sso apo ssaisng ayy, i ew sonmeuig spuouersone py ‘ouapyye aounsesaeai8 0 nququc eur sous net an, jp sinew ovement ae|dino o suogeu ype Aa Apu OU asa ‘payee s amoid oy, sour pog Sump soBon Suueap joer ony aTD 35 0 samy poo? Zumnp sien. Somes jayseUs UNG aN dane Lew ERM eee Geer Scryer cern Pepe zy aE YOU PTHOYS eERUOD ype 20 youu TaN or Bey ee Sieve aleneee puro pena jo sven soy unt py xo 0 (oe 80 Send ueu dou} sv soy Aue se jaoun youeD saaKoydsa) quowoydurarap iryarsagan oben onan oq ang acatomn loy soe ad teh eur 252 vonompoud jo ese majoand ab yy spe oj upto AG, iad suadeo aotr mu ® wmnajonad seu oud Yow ask omBHTEZP Y ot sopm ogg aang of soucrny 9 sade sy nn peg A aa Sa spe cial esses ham HOUND PED lve gas eA P| ago gay ata BoP ‘Bououadeo os xg ospous 20d [0 "uo SeUTESSUOD) uous rag essu spe] 2 30 yeuoRRSA fe sangd gsobuetp 321d, Toefl a pt vom edt m mag HE raeacs ay, -H0 510M STaUSUOD B36 SE dni aro umes recap ety aruapido we dso 204 "wonesofest Xp JAYY PuE 315 SD aye pS! AM) aS 34 HHT SY “Bho go ton oq re sok ng bd wat oo) upead wo aera ndasopey ax say PuR ign azpcpen ce woRuNSHO> a UM eovoad juaumsnfpe ayy ‘poewap pu Addins Ut o's popa ped page pa pon Sano a reoqpmposut ip SAN o os Jpvonongas xg au spp ak wo uoube I) 202 -uos amass pcr aos op uy ens aac se SONS) “Gis ons ay wopooe Suse Beep aN equa apg wat € way ‘2Sieip suoncmose a 0 te] Fe erm snd a aea04 UE SU OPE ED wre pepo jo onauerb a) Subp Ag yo aH onus a NNT deere Sarpeso uy ig azo uF wean ue SmTaBSU0 Po ‘andre, ug anbune"mustaopt> Pej pu SRT NE a ane yoqe soy aes os wai Ae 0 228 PE SANPABO AL sys03 yuounsn PY _spoo8 pm somos uogeooeproduaynsng 2 Pe qouogeragsneyd se ase Aw sua 2m) Jo foebape ay nage sm (eau suoyensnr yee IES sutajqaug posoduapaqut fo aside spay aoe Ae ans oum 9521 POS} 38 Spud wore Aq papa“Table 61 A Sunny of Market lus and Ther pli for fey ‘Faditonal Masiet Failures (Chapter 3) ‘Bre public goods anderaupps) Public | Open acess common propery (overconsumption underinvestmen®) ‘Tal gods (ndecsupety) ‘Excalies | Poste exemaliies(wdssupaiy cee using Maes | Neate eters oreuny areas eos ang ‘nu (Tnbe st ‘gore ua up sooo wo A eure nb yy en saa euoe oN Jan youuept yo uoadumrseay—svadésp wor2uny a sana pon yan jo dn rie ai Kp) wosed yea ao a EU ARAM O wHAEOTTE at vy sang ape esa CSG 9 asap _ [Bm jepos # area 0 poyeDoge 09 pO aa Te ane od -oad asin yu Tasanoy aul szao aga jo 3U0 16 830A aR BSA pn ead am sion 0 on Ea aE BG PHO je oe 9 pon ojdood sang ap SuoUe MONETTE Awe 1) ON soto Am ouuew Supa qa 2m Jo ShiauaU anfsoons On o Sattar es {0p By oy sua sayy sutse geen uo {uo spued -apinyg uonoy aun sey odd xo o ype exp aus dced sang ua aw AEP OL joxepur ue on Sfenpepar jo 5» jo uapeoyreds ayy sfenpia squeulisopu yo wong} [ennai 40 aDuey See oda ut om apa panne sumcins damn uous oumpooar ayy sjenpuapur jo sop a4 Jo suosteduon oud Sunyeur OWN ‘spo08 jo suonooye Suryue o fem ca Sousa ote Jo 3450109 2] suonouny anf prpog pode Aouapyyq ojareg puodag axeyjeq [epg SEL 09.290 pus ouoarpusea nga aang f stewing doy seg gq ys wut 22 H sp aatario> Ur NysiaN : a apts 9 6) ae 62 SATU TY a ARE guns dapsone Bd 0 OSE aman snplaparsy e008 poC8, 2) ot 3 SRDS ONY a a nya, nu oH] oy es a Eee ennd pgs wl ousisunas> Zasepe 9 par 5 sic Sa bogs ae po aN OPERA g]005 Jay] pun jwuoryng.l4siq] Aotod MqGNd 405 saeuonyey| ‘Tnble 74. Alternative Socal Welfre Fanctons Alternative Social Welfare Functions Multiplicative aS a0 Choote Policy A anim (Ut Us) | (et F,000 Groowe Foiigy 5 ‘Unitarian, + eS ty 90 20 Ghose PolieyE Tndividuat Utilities rom Alternative “ie t Person | Person? ta Fc) Policy A Poliey B Polley hape 7: Ratios for Public Policy: Disbanded Otter Gees 485, {strani is an infuetial welfare function developed by Jeremy Bentham nd especialy ohn Stuart Mil. Ttalso has attracted modem adherents such he Taine web Haat whe anos erated ee nas imizing the expected average utlity of all individuals? Utitanlinion wa ‘tants philosophy in th actions ae tobe evaluated in tans ofthe pre erences of people who ‘ust decide ona system of socal nstitutions without owing what ei owners -dowments (such as race, intelligence, and wealth) will be in so. Behind this mages cn to consider te overall strbution of opportunites and outcomes. Ravages ‘vould unan- {mously exhibit risk aversion and would therefore select a sedal elle ance {hat rales the poston of the east advantaged, leading to rete exualy of, comes. Civen that Rawls pais peopl agreeing to socal institutions behind te SEEMS pill approach isin the spi of th “sacl coir” approach jou pra s Jo 805k. ‘Ayouonesoaygedeou are gdoad page ur SORES OPSUCS asoip yo uor dumsuoo sagopa ox weIy saypes anos aw s UNO UND [RRS A, ashony women af supnng oman 1 8a16 Prt I: Conceptual Fondation for Problem Analysis a jose a ot The key questi uch ture wealth are we as a society collectively wills ing to achieve greater equality in dstbution? in practice, we must rely on the political proces for an answer. Preserving Institutional Values “storical accident, a well as purposeful individual and collet vides the world into dstinet polities. National governments Pl {nesteblishing the tems of politcal and economic inert formal and infor of hose whom they initially go aliemative polities through immigration ard emige ‘isopod ys (Chapter 7 Rationales or Public Peicg eae a6 fair are more ple who view sting processes ‘facilities near their hometowns.*! Consequences Before relating the distributional ional consequncs of aematve policies to sb values, ve must first answer the question: lire pear ail fom?" Bren putting aside th being ditobuted to and fom goods Personal income, se ofthe input facors aber, and, capi tive measure of purchasing power. Income: ats from purchasing power in several impo ysis. ar a via of hws Fah Sey“ fatevah doce, Kath Sealy “Cover ip) Nica i Rey” BRATS tas Py wt Ra htt Sa orn a alg ya--t9 ane ‘woven 385 MY mapa onoy a se reer ag nese passane cap ooygprogceneyua aD BUA SP ueuras prom aucout eyide> 204) eternal es Ss 0 agama anh PD adem ova jo plowpenoy ait “tee sua a IR ow o~ ae ne ne ‘aoyy wodumsno> o 9 os eo w ‘MB NO ‘anor 6 ss et va go | sex stipe "6 6s en m | se ° se ot Fa ta o ow 8 w | cess | wes | wens | aust | owes me) ases | ras presto aepay ane as a @W00UL JO svOSEUL ue Jo samseour sno ree on380 1 for Pols Analysis Par Conga Fe Index Issues Comparing distributions poses the problem of choosing appropriate metric. ‘dealy, we would ike an index that ranks disirbutions aosoding to appropriate istibational values, Dificultes arise because no single index can folly summarize ‘adtbution. They also arise because of ambiguity i operationalizing cistibutional values. Consider fst the problem of characterizing a distribution, The commonly used measures of ental tendency, the median (le middle value) and he anthmetc mean (the average, fui as indices fr characterizing the - tributions. The median ofa distribus we everyone with income below the meal ing ito the richest. A messure tions from the mean, comes closer ght ie a Loren dagram between the or the dstubution. A Gin cofcet et in further reduces the Gin index, to 40, indicating that faking account indies feud Saya Chat icy Distribution and er Gals 151 Percent of Income Ri Iegualy ‘makes the income distribution in the United States appear within groups. Yet dis- ‘defined byeuoangrasp ospeoyuayo sng -v0> 31091 Aq pa1088j -uonygsuoo wou ods -soutord yap sapqod ug sn woe xp asr¥r09 ng ae HHO TAR 30} AES 2pHOIP ungito amnpar 0} sen ‘pressed ow Boog up sapgod ua jo avoneoydun ay ame ypeordd juga amy jou oy pus deere ve see oxo pe sun ap ae ay sonpea aantsons gio ie sensu anes py 9003 po08, op 30 eo8 apt sone, [enroumsysuy Sans ,S1PS0T HATS, -voneunaDStp yeompa’96000 0 ALE sooo aiedo> re wapyo a80%m pte ae yo saeek Trai puR wou waa SPE UEYO sone 8d gay wagons nf wtRee 154 Part Conceptual Foundtins or Problem Analyt considerations thet do not nesessarily correspond to substantive values. For ex ample representatives may be eoncemned with the quality ofsome category of pub~ iiapenchg across he istics tha they represent, even fless cua cisinbutions ‘Would eontabute oreo such value as efnceney ox amore egal distribution of ‘weal across houses ‘Consequently even when dstrbutional val {ws dost sccm substantively relevant they never maybe insiumentaly e- evant politcal feast Revenues and Expenditures Levels of public expenditure, usually through the budgetary pro in several ways, Fast, rising public severe is gen paltcaly cost 50 that, other things equal, polices greater general political support Second, located budget. The same reasoning would such as personne levels and borrowing au perepetive ofthe decsion maker. Expending no more than the avaiable amounts Er hese resources is instrumental to achieving the substantive values sought by the policy Conclusion ‘ewvertion in the next chapter. Chapter Rationales or. Distributional end Otter Gms 155 For Discussion 1. Almost 5,000 people de inthe United Stat e United States each year waiting for organ plate Ths acres rua enn sabe ranene et and death implications. Which, ing oct ‘medical condi comparisons amang the young, ¢l- ct anying about substan ani