PS2240 Lecture 3

Efficiency, Equity & Public Admin

1/26/2012 11:16:00 PM

Get an overall picture of how we think about efficiency and equity. Understand the relationship between efficiency, equity, and public administration. Learn the difficulty associated with measuring efficiency and inequity and why this matters.

Productive vs. Allocative Efficiency What does the govt do? Outputs = f(inputs, technical efficiency) Outcome = f(inputs, technical efficiency, other factors) Outcome = f(outputs, other factors) o Outputs are under the control of the government o Other factors are not the control of the government e.g. family backgrounds in the case of MOEs desired outcomes

PA & Efficiency Administrators Are inputs (labors) in the ptdn Are fully/partially involved in decision making regarding outputs & inputs Provide information/analysis to political representatives/appointees Implement policies Therefore, admins actions & decisions have impacts on efficiency. Critical implications on the utilization of public resources HOWEVER, Difficult to achieve allocative efficiency! Arrows impossibility theorem Is it possible to achieve equity then?

Efficiency vs equity

Law of diminishing marginal utility as I get more and more of a unit, it becomes less and less important to my satisfaction Edgeworth box o Btw the two different indifference curves, any point where the two curves are tangent represents Pareto efficiency o The line that connects all the tangent points represents contract line of efficiency o However, does this line mean that allocation is equitable (fair)? o When endowment is low, you could have almost nothing, yet nobody can be better off w.o making someone else worse off! o Pareto efficiency obtained, yet is this equitable?

Hence , governments sometimes use redistribution to make peoples utility levels closer. As long as aggregate utility is maximized in a society, then the society is seen as utilitarian. Rawlsian: prefers a more fair distribution of income Does $1 mean the same to a millionaire or a beggar? Interpersonal comparisons of utility => impossible? Measures of Welfare GDP GNH Inequity Measures Gini coefficient: measures the distributions over the range of income Poverty line?

So what? Public administrators conduct analysis & provide information to political representatives. Key Messages

 There are different types of efficiency. PA matters to efficiency. PA topics concern different types of efficiency. An efficient distribution of wealth may not be equitable. Measurement is important for policy formula/on/ analysis. Indicators are not perfect and the selection of indicators has distributional (political) implications.

1/26/2012 11:16:00 PM

1/26/2012 11:16:00 PM