Lecture Managerial economics (8e): Chapter 11 - Samuelson, Marks

Chapter 11 - Regulation, public goods, and benefit-cost analysis. This chapter focuses on the microeconomic function of government. In this sphere, the government has two main roles: to regulate private markets by providing basic rules and correcting for market failures that would otherwise result in inefficient production or consumption, and to provide certain desirable public goods and services that are not, or cannot be, provided via private markets.

Managerial Economics, 8e William F. Samuelson   Stephen G. Marks ●

Chapter

 eleven

Regulation, 

Public Goods, and Benefit­ Cost Analysis

How many people does it take to screw 

in a light bulb?

Economist: None, the market will do it.

Consumer Advocate: None, the 

regulators will do it.

~Dennis Carlton and Jeffrey Perloff

The FDA, AZT, and AIDS

Azidothymidine, or AZT, retards 

multiplication of the AIDS virus in cells.

I. Market failures and 

regulation

Rent Seeking

Government Responses

1 Breaking Up Existing Monopolies

2 Preventing Monopolistic Practices

3 Preventing Mergers that Reduce Competition

4 Preventing Collusion

The United States versus Microsoft

Market Failure Due to externalities

Remedying Externalities

Taxes

Quantity Limits

Private Payments

Global Warming

Production accompanied 

by an externality

Figure 11.2

Optimal regulation of an externality

Promoting Positive Externalities

Promoting Research

The Patent System

Copyright

Regulatory Reform and Deregulation

Market failure due to imperfect 

information

Business Behavior—Assessing Risks

II. Benefit­Cost Analysis  and Public Goods 

Provision

Public Goods

Public Goods and Efficiency

Building a Highway

Optimal 

output of a 

pure public 

good

The Basics of 

Benefit­Cost analysis

Applying the Net Benefit Rule

Dollar Values

Efficiency versus Equity

Public Investment in a Bridge

Public Pricing

Regulating the Ferry

Figure 11.4

A Benefit­Cost Analysis of Building a  Bridge

Market Values

Nonmarketed Benefits and Costs

Direct Elicitation

Indirect Market Measures

Socially Determined Values

Valuing Lives

The FDA, AZT, and AIDS Revisited