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Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

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  • Joseph Stiglitz

Abstract

[Joseph Stiglitz was a member of the Council of Economic Advisers from 1993-95, and chairman of the CEA from 1995 through February 1997.] Today, I want to share with you some of my thoughts about the possibilities and limitations of government. These thoughts are focused around a simple question: Why is it so difficult to implement even Pareto improvements? Working in Washington, I quickly saw that although a few potential changes were strictly Pareto improvements, there were many other changes that would hurt only a small, narrowly defined group (for example, increasing the efficiency of the legal system might hurt lawyers). But if everyone except a narrowly defined special interest group could be shown to benefit, surely the change should be made. In practice, however, "almost everyone" was rarely sufficient in government policy-making and often such near-Pareto improvements did not occur. My major theme will be to provide a set of explanations for why this might be so. I shall put forward four hypotheses in this lecture, each of which provides part of the explanation for the failure in at least one instance of a proposed Pareto improvement. These hypotheses, like much of the literature on government failures, focus on the role of incentives: how misaligned incentives can induce government officials to take actions that are not, in any sense, in the public interest.

Suggested Citation

  • Joseph Stiglitz, 1998. "Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 3-22, Spring.
  • Handle: RePEc:aea:jecper:v:12:y:1998:i:2:p:3-22 Note: DOI: 10.1257/jep.12.2.3
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    References listed on IDEAS

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    4. Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, pages 278-283.
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    8. Joseph E. Stiglitz, 1996. "Whither Socialism?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691825, January.
    9. Joseph Farrell., 1987. "Information and the Coase Theorem," Economics Working Papers 8747, University of California at Berkeley.
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    14. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, pages 309-335.
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    More about this item

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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