Moral Hazards
This is the situation where one acts indifferently towards a certain situation because of existence of a certain contract that will act in their favor. An example is when a business has taken fire insurance with a certain insurance company. The business might not put in place adequate measures like smoke detectors in their rooms to try and avert the risk of fire. The business might also lack the fire extinguishing devices which might mitigate losses that will occur in case of fire. Moral hazards can cause deep economic failures like closure of businesses in the insurance industry. To prevent such situations happening, the governments has to come up with policies that protect parties in a contract from moral hazards.
Endogenous preferences
Citizens can be allowed to use any medication on certain diseases. The use will be determined by the patient’s preference. The government can come up with policies that control the extent of which the drug is used to prevent abuse. The justification of the policies is on consumer protection.
One of the unacceptable preferences is the discrimination on gender and racial bases in the employment sector. The discrimination leads to need of development of policies that will eliminate the denial of employment to people on gender and racial background. The preference is seen unacceptable on human rights and religious basis where human beings are supposed to be treated as equal (Cavalli and Feldman 40).
Social welfare
Utilitarian social welfare
It is social welfare that sums up the total utility of group of people and then gets their average to arrive on the social welfare for the society. This social welfare does not take into consideration individual differences but take all people as equal (Smart, Williams, and Bernard 150).
Rawlesian social welfare
This social welfare has two principles which are the difference principle and fair equality for opportunity. The difference principle allows for different treatment of people in the social welfare to the advantage of the unwell. The fair equality allows people to have equal access to government services like hospitals without discrimination in their social class.
Multiplicative social welfare functions
This is a social functions that put into consideration values. This social welfare function is multiplicative and not additive like the rest.
Use in choosing public policies
Choosing public policies will sometime require the differentiation of the different class of citizens. A policy like increase or decrease of tax on citizens of a county would require looking at the social impact it will have on poor as a different group. This policy would require the use of the rawlesian social welfare to take into consideration the poor. Public policies on issues like provision of health care will take another policy. Governments have to chose the most appropriate social welfare policy in making decisions.
Regulatory capture
This is a situation where government creates organizations either through policies or acts to control a certain line of industry to the interest of the citizens. The regulatory body later starts working in the interest of the bodies it was supposed to regulate and not the citizens (Bernstein 200). The federal communication commission in the United States is supposed to regulate the communication industries. This organization is facing some criticism from scholars that it is being compromised by some leading media houses. The compromise is leading to formulation of policies that allows communication houses evade some of the taxes. Regulatory capture leads to a situation where policies formulated for the good of the citizens are not implemented by the bodies charged with those responsibilities. This makes public policies supposed to be implemented by them useless no matter how good they look.
Rent seeking
Rent seeking is a situation where an individual tries to enrich himself without putting any effort in terms of capital and money in an investment. Large corporate sponsors some candidates on legislative seats. Once these individuals are elected they are used in formulating policies that are unfriendly to the competitor of the sponsor company. This may lead to development of a monopoly where the competitor is not able to continue doing business under the new policies leaving the sponsoring corporate making supernormal profit. Rent seeking will lead to an inefficient public policy because most policies made will not be genuine. The policies will also be used against the citizens instead of protecting them.
Principal-Agent Problem
This is a form of management of resources by a certain group of people known as the agent, who are answerable to the delegating authority known as the principal. The principal-agent problem is mostly seen in the government where bodies are formed to run some government services. The leaders of these organizations can act against the will of the authority of the government leading to conflict of interest. An example is the management of public transport in American cities by corporation appointed by the government. The corporation will ask for money from the government on projects they think is worth investing. This ability of the corporation to come up with their own project may lead to misuse of state resources in financing unwanted projects. Policies that will ensure accountability need to be developed. Accountability ensures the public and government interest is met. The principal agent problem leads to a situation where the principal is the government is not able to implement the regulatory on the agent. These leave the public with the responsibility of bearing the blunt of this corporation in offering inefficient services in the transport sector. The inadequacies in implementation of government policies by these organizations make the public policy inefficient.
Works Cited
Bernard, Smart, and Williams. Utilitarianism; For & Against. Cambridge: Cambridge University press, 1997.Print.
Bernstein. Regulating Business by Independent Commission. Princeton: Princeton University press, 2009. Print.
Cavalli, and Feldman. Cultural Transmission and Evolution: A Quantitative Approach. Princeton: Princeton University press, 1999. Print.