The Role of Government





Oliver D. Hart (Department of Economics)
Freshman Seminar 42C  4 credits (spring term)   Enrollment:  Limited to 12

Economists have a very positive view of the role of markets. The intellectual foundations of this are the first and second theorems of welfare economics. The purpose of the seminar is to introduce the students to these results but also to their limitations. For example, for markets to work well it is essential to have a legal system that upholds contracts and protects property rights. The legal system is also important to deter crime. But who can provide the legal system other than a government that has the coercive power to raise taxes? The legal system is an example of a public good, but of course there are many others including national defense, clean air, etc. Markets under-provide public goods and they also do not work well in the presence of externalities, a highly topical example of which is global warming resulting from carbon emissions. Another very topical issue is inequality. There is no particular reason to think that a market economy will yield an equitable distribution of income, and given this what is the appropriate government response? Throughout the seminar the analysis of ideas and concepts will be interspersed with policy issues such as whether and what limitations should be placed on the right to smoke or consume drugs, the right to marry, the right to buy and sell organs, the right to bear arms, and the freedom of businesses to decide whom to serve. We will also consider the pros and cons of the Affordable Care Act (Obamacare), the role of government nudges, and whether goods or services paid for by the government need to be produced by the government or can be outsourced: the issue of privatization.

See also: Spring 2023