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Government Failure - Essay Example

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This study declares that moral hazard is a situation of behavior change by covered consumers, where these consumers make less effort in the avoidance of misfortune. Moral hazard occurs in the context of costs and benefits. These costs and benefits drive the occurrence of incentives to consumers…
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Government Failure
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Government Failure

Download file to see previous pages... Endogenous preferences refer to preferences that are dependent on other factors that actually influence preference. For instance, demand for the latest mobile phones is driven by technological advancements. In this case, technological advancement highly influences demand for latest phones. The fact that circumstances can change preferences justifies public policy. Unaccepted preferences, on the other hand, are those whose impact on other preferences is negative. Education preference, for example, varies across individuals. However, through public policy, unacceptable preferences are regulated on social interest grounds.
Utilitarian social welfare function – Preferences and the resultant consequences are evaluated for each and every individual and then summed up. Individual utilities for a given good are aggregated, and therefore, every utility of an individual prior to the good is incorporated. Individual ranking in the market or society is not taken into account. A public policy that results from this choice is likely to depict aspects of loopholes in the observance of individual rights. Minimum allocation choice is not guaranteed.
Rawlsian social welfare function – This function is characterized by social equality. This is achieved through presenting maximum benefit to the disadvantaged in the society. Decisions on social institutions depend on people’s individual endowments in society. Where social institutions system is to be established without prior knowledge the endowments, the resultant social welfare function aims at uplifting and benefiting the least advantaged in the society. Public policy under this choice is basically equality-tailored, although wealth creation incentives are likely to be reduced in that process. ...Download file to see next pagesRead More
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