Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

Joseph Stiglitz

Journal of Economic Perspectives, 1998, vol. 12, issue 2, 3-22

Abstract: [Joseph Stiglitz was a member of the Council of Economic Advisers from 1993-95, and chairman of the CEA from 1995 through February 1997.] Today, I want to share with you some of my thoughts about the possibilities and limitations of government. These thoughts are focused around a simple question: Why is it so difficult to implement even Pareto improvements? Working in Washington, I quickly saw that although a few potential changes were strictly Pareto improvements, there were many other changes that would hurt only a small, narrowly defined group (for example, increasing the efficiency of the legal system might hurt lawyers). But if everyone except a narrowly defined special interest group could be shown to benefit, surely the change should be made. In practice, however, "almost everyone" was rarely sufficient in government policy-making and often such near-Pareto improvements did not occur. My major theme will be to provide a set of explanations for why this might be so. I shall put forward four hypotheses in this lecture, each of which provides part of the explanation for the failure in at least one instance of a proposed Pareto improvement. These hypotheses, like much of the literature on government failures, focus on the role of incentives: how misaligned incentives can induce government officials to take actions that are not, in any sense, in the public interest.

JEL-codes: A11 D73 H11 (search for similar items in EconPapers)
Date: 1998
Note: DOI: 10.1257/jep.12.2.3
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Citations: View citations in EconPapers (59)

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