Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions
[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.
Volume (Year): 12 (1998)
Issue (Month): 2 (Spring)
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- Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, vol. 73(2), pages 278-283, May.
- Isham, Jonathan & Narayan, Deepa & Pritchett, Lant, 1995. "Does Participation Improve Performance? Establishing Causality with Subjective Data," World Bank Economic Review, World Bank Group, vol. 9(2), pages 175-200, May.
- Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 229-264.
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"Rank-Order Tournaments as Optimum Labor Contracts,"
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University of Chicago Press, vol. 89(5), pages 841-864, October.
- Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-34.
- John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, March.
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