No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fourteen: Decision-making in Democracy: Public Choice 338 while the costs of that position are widely dispersed, we will see an overproduction of the good and a lower price than is economically efficient. An efficient outcome would be at P 1 and Q 1 , rather than the reality of P 2 and Q 2 with the subsidy. We may ask the question why there are so many special interest issues within the federal budget—ethanol subsidies, sugar tariffs, green energy initiatives, tax breaks for weatherproofing housing, tax breaks for purchasing houses, agricultural price supports, and on and on. Each one of these issues has very concentrated benefits and widely dispersed costs. The advocates will spend considerable amounts of time, money, and energy to ensure the continuation of the policy, while the average consumer will be rationally ignorant. In this case, the widely dispersed costs may be greater in total than the concentrated benefits and therefore economically inefficient. Thus, the outcome we actually see— much of our nation’s laws benefitting special interests and not the general public—is consistent with a public choice analysis. Let’s look at the opposite situation, that of concentrated costs and widely dispersed benefits for a given public policy. In this case, we are likely to see an underprovision of the good or service, since those individuals bearing the cost have a great incentive to become informed and politically active to resist the policy. Rationally, they will be willing to spend up to whatever cost the policy would take from them to preclude its implementation. On the other hand, when benefits are very low, the great majority will have little incentive to even be aware of the issue much less take action. An example might be the storage site in Nevada for nuclear waste at Yucca Mountain. The perceived costs are highly concentrated to those living in Nevada, while the benefits are low and spread out to everyone else. At least some portion of Nevadans are greatly motivated to stop nuclear waste from coming to their state, while most Americans don’t even know what state Yucca Mountain is in! The overall benefit may exceed the cost, but the political result is that citizens against the storage facility were ultimately able to stop it from being used. So if projects with concentrated costs and dispersed benefits (or concentrated benefits and dispersed costs) potentially lead to inefficient economic outcomes, can government do anything efficiently? You may be surprised from the discussion heretofore, but the answer is yes—government can provide goods and services efficiently (at least theoretically!). Policies that have concentrated costs and benefits, or policies that have dispersed costs and dispersed benefits, have a much better chance of being economically efficient. Why is that? To answer that question, consider one way to concentrate costs and benefits of government services. Many states require a fishing license to fish in public waterways (but not privately owned ponds). People who benefit from public fishing pay a user fee [The] central conclusion of special interest group issues[:] if the benefits of a particular position are highly concentrated, while the costs of that position are widely dispersed, we will see an overproduction of the good and a lower price than is economically efficient.