Externality of Public Administration - Essay Example

Lecturer’s and Number Submitted I. An externality refers to a situation that either creates a gain or a cost to the society’s living standards, but does not affect the producer or a consumer of a good or service in monetary terms (Sexton 210). In other words, externalities are economic side effects to the society. Externalities exist in two categories as either positive or negative. Positive externalities refer to things that promote gains to the society, disregarding financial gain to a producer or a consumer of a product or service. Negative externalities, on the other hand, refer to things that impose costs to the society as a result of production or consumption of goods or services. There are a number of positive externalities such as vaccinations, research, environmental clean-ups, and new product technologies. Considering vaccinations or immunization programmes, for example, contributes to the social well being of the society as a whole since it reduces susceptibility to diseases. As such, transmission and spread of diseases is limited and subsequently, a positive impact on savings is achieved. This, however, does not increase the profit margins of the organization that offers such a healthcare service. Such a positive externality should be encouraged, and this is the where the government comes in to implement economic policies that work to this effect. Positive externalities can generally be promoted through increasing demand and supply of products, services as well as resources that produce such gains. With regard to encouraging vaccinations, the government can achieve this by providing grants and subsidies to the producers of the vaccines thereby reducing the cost of production and concurrently increasing the supply (Sexton 211). The government can further promote this noble course by providing sufficient information to the society through public information broadcasts so as to cover for the ignorance that discourages reach of such programmes as vaccinations. These actions by the government would mean passing decisions to source funds from the tax revenue to fulfill the objectives. Negative externalities are widely more common as compared to the positives ones. A very good example of a negative externality is pollution, which causes no loss to the polluting organization, but instead lays the entire burden to the society. Pollution heavily undermines people’s health and wears down the society’s living standards as well as the value of the property. Unless there exists a compelling regulation on property rights, pollution can get out of hand with no company taking responsibility. Establishment of property rights would encourage negotiation and agreement between the society and the companies involved. If that approach fails, then the government comes in to enact legislation that discourages such a negative externality. Measures to achieve this may include taxing the polluting companies, selling tradable pollution permits, or limiting the amount of pollution created. The government can also force compensation to the community members affected by the pollution (Sexton 213). This would imply that if a society member incurs financial costs such as medical bills as a result of a company’s pollution, then that company is compelled to cater for such expenses. Generally, the solutions to both positive and negative externalities are heavily dependent on government ability in terms of creating and or enacting policies in relation to such. Another common factor is that such decisions involve funds, which are for a large part sourced from the taxpayers’ kitty. Most decisions on policies are either passed or rejected on the basis of majority vote by the legislative arm of the government. The probability of seeing these solutions into laws is very high even with the involvement of opposition in the process of decision making. Opposition parties majorly exist to counter-check and challenge the ruling government’s decisions on various matters of national concern. Mancur Olson helps us in understanding why the government succeeds in enacting many of its policies as it does. According to him, in as much as people belonging to groups of common interest are expected to join hands in fighting a common goal, they often don’t. He notes that the concept of rational and self-interested behavior does not relate to the idea that a group will act in its own interest unless the group comprises a small number of people or unless a very special motivation is involved for its members to act in their common interest (73). By the nature of composition, opposition parties are quite large, and their membership presents a factor with regard to working together to confront government’s decision on policies. Olson presents challenges faced by larger groups in mobilizing support to influence government decisions on policies (117). Unlike in larger groups such as an opposition party, participation or withdrawal of a member determines the success of smaller groups. Olson also argues that there are social pressures, which favor small groups as opposed to large groups since members of a smaller group can interact with one another at personal levels. In large groups, an individual is ideally small with regard to the whole membership, and as such, his or her participation will not account too much (121). Considering Olson’s observation of group behavior in relation to passing legislations on externalities, the opposition would not prevent the government from implementing decisions, and as such, they would become law. II. Prisoner’s dilemma ideally presents a conflict between what is suitable for an individual and what is suitable for the good of the group. This concept, that commonly uses the situation of two criminal accomplices that have been apprehended by the authority, analyses the probability of cooperation or betrayal in the event of separate interrogations (Poundstone). Other than separate interrogations, other situations that can be explained using the prisoner’s dilemma involve real life motivated situations such as accidents, fines and minor violations of the law. This is according to Matjaz Perc, a physicist at the University of Maribor in Slovenia. He notes that cooperation succeeds more under such real life situations than the traditional idea that bases prisoner’s dilemma on two suspects that are interrogated separately on each other’s fault (212). The challenge that these prisoners experience is that being silent is better than making a confession betraying the other, while if both of them confess then each will serve a higher term than they would have if both cooperated to remain quiet. However, if only one cooperates and the other betrays, then the cooperator suffers alone while the betrayer goes free. It is only rational to make a decision that best favors oneself, regardless of whatever choice the other party makes. Therefore, it is more likely that a group whose members choose rational self-interest may suffer more than that whose members choose irrational decisions. By studying another model of the prisoners dilemma - random payoff variation - involving a number of people and various repetitions, Matjaž Perc found out that results may somehow reflect as the previous model but sometimes people may produce improved or poorer results at any point of the exercise. Considering a realistic example, cooperation does not definitely lead to very severe consequences such lifetime imprisonment or long time sentences but instead sometimes it might be a few years. In some situations as well, the single defector is not released, but instead gets a sentence too. This implies that either way, the two individuals who cooperated tend to gain more both personally and in general. Perc also realized that it can be unusual to increase the fear of cooperation, or to decrease the benefits of mutual cooperation depending on the degree of fluctuations of pre-set average payoffs. In other words, cooperation is increased considering a certain level of payoff variations. Perc uses the "double resonance" concept to show how cooperation can be facilitated in such situations of real lies. He considered significant values for the variable payoffs, including for changing and long-term individual connections, and came to a conclusion that these two aspects lead to a higher rate of cooperation between the people involved. Further analysis shows that cooperators stay strong by forming groups so as to defend themselves against exploitation by defectors. Cooperators found at the core of such groups benefit from the mutual cooperation of individuals and are, therefore, capable of surviving even in the face of exploitation by defectors along the borders of the group. Cooperators may, however, give up if the motivation to defect exceeds a threshold rate. Perc notes that real life situations normally engage humans in forming alliances with both their immediate neighbors and with others that are far away physically (246). Another situation presented by Perc in relation to prisoner’s dilemma is a real life occurrence whereby two countries invest billions of dollars in building and storing arms and weapons fearing that the other may also be doing the same as a measure of defense. Such a situation will more likely encourage cooperation between the two countries considering the wasted money they spend on the non-productive arms race. The double resonance phenomenon explains that organizations or countries that are able to form binding allies will cooperate to support one another. According to the double resonance idea, such countries can more willingly cooperate by starting to work together in the event of decreased threat, and also by taking advantage of currently existing long-distance connections that provide a means for cooperative alliances throughout the world. The entire concept of prisoner’s dilemma evaluates the outcomes of cooperation or lack of it between individuals as well as groups given various situations. This is reflective of the significance of cooperation in terms of influencing public interest decisions versus personal interest decisions. Public administration also considers the balance between rational and irrational decision making with regard to individual and group welfares. The group interest versus self-interested behavior is once again compared as to what roles they play in solving problems or making decisions for the common good of the society. III. Social welfare involves taking care of the society’s unfortunate or the vulnerable individuals and families. Social welfare systems are designed to provide particular minimum opportunity and standards to the poor people in the society through initiatives such as education bursaries, health care services, provision of food stamps, child support, compensation for unemployment, housing assistance, among other social services. It is majorly focused on the quality of life with regard to the above mentioned services other than focus on standard of life. In as much as social welfare should seem as a communal endeavor, majority of such programs are funded by the government in form grants. This, however, means that once again the taxpayers’ kitty is the source of this funding. There have been contradictions and controversies far, and wide concerning the social welfare policy due to a number of reasons, most of which emanate from economic arguments. First, since social welfare is supported by funds raised from taxing the productive citizens and business firms, a good number of people do not like it. A number of nations participating actively in social welfare programmes are currently experiencing financial constraints as a result of investing heavily in such. The system itself is also marked by widespread abuse due to poor management and misuse of allocated funds, which draws a lot of criticism towards the policy (Poundstone 265). This indicates that the integrity of the social welfare system and programmes is compromised and thereby its existence is controversial. Economic rationality argues that social welfare can be taken care of by market forces better than they are addressed by government regulations and policies. As argued by economic rationalists, market forces, which refer to the effect of demand and supply, always provide more reliable solutions to issues concerning product and service availability, consumer tastes, preferences and choice among others. As a result, the forces of demand and supply naturally encourage a faster growth level of the community’s welfare. In other words, economic rationality views social welfare policy as inclined to providing an advantage biased to a segment of society. It also generally reflects on the capitalist economy where the unregulated market is believed to achieve a balance between demand and supply, thereby automatically distributing resources effectively to the society. The question of long term and short term rationality definitely plays a role in this situation in that economic rationalists consider factors that may create or hinder equilibrium achievement. The achievement of the balance between demand and supply is determined by changes in relative prices of goods and services as well as variation of income and interest rates. The blame of continued unemployment is shifted to institutions’ actions such pressure from trade unions, laws on minimum wage among others. Such actions are believed to be hindering the value of wages from attaining a level in which the demand and supply of labor is balanced and subsequently full employment obtained. Further, economic rationality views the public sector or government to be inefficient by nature, for some reason because it does not fully comprehend market disciplines or experience the challenges faced by the private sector. In other words, economic rationalists suggest that the private sector can handle matters more effectively that the government. As such, they argue that public sector activities that are being carried out in the private sector are supposed to be left in the hands of the private sector. This, as they suggest, will greatly lead to an increase in net economic welfare, and as such, the economy will become more vibrant meaning that limited resources will be efficiently allocated to the population. In as much as it seems logical to allow market forces to address social welfare issues, the truth is that this option is far more unreliable since market trends are unpredictable and often experience failures from time to time. Such failures would translate into undermining the social well being of a country’s citizens at the benefit of a few individuals. A sane government cannot, therefore, hand over its vulnerable population to the forces of demand and supply but instead guard social welfare with laws and institutions that describe and protect property rights, monitor competition, protect the environment from harm, provide infrastructure growth and improve living standards in general. It is, therefore, not economically irrational to support generous social welfare policies. Works cited Olso, Mancur. The Logic of Collective Action: public goods and the theory of groups. Harvard: Harvard University Press, 2009. Poundstone, William. Prisoners Dilemma. New York: Knopf Doubleday Publishing Group, 2011. Sexton, Robert L. Exploring Economics. Stamford: Cengage Learning, 2010. Read More