Elinor Ostrom and Oliver Williamson shared the 2009 Nobel Prize for Economics (and a prize of $1.4m) on Monday for their work on how economic transactions operate outside markets in common spaces and within companies. Their work includes topics such as the free-rider problem and how this can lead to a sub-optimal over-consumption of a resource. Their work also considers economic governance and how this has led to the increasing popularity of outsourcing for companies.
Despite the prestige of a Nobel Prize, there have been suggestions that a Nobel Prize in Economics should not have been awarded this year, given the inability of economists to predict the financial crisis and mixed opinions about how to prevent another one in the future. What do you think?
US duo wins Nobel for economics Financial Times, Chris Giles (12/10/09)
Two Americans win Nobel economics prize MSNBC, Associated Press (14/10/09)
What this year’s Nobel Prize in Economics says about the Nobel Prize in Economics The New York Times, Steven Levitt (12/10/09)
Humbling year for bickering economists Financial Times, Alan Beattie (11/10/09)
Questions
- What is market failure and how does the free-rider problem fit in?
- Do you think economists were at fault for not foreseeing the financial crisis?
- Do you think that the research of Elinor Ostrom and Oliver Williamson was deserving of the Nobel Prize and how important is their research in the context of economic theory?
For some time now, education has been a top priority for the government. They have been tackling standards in schools and have a target of a 50% participation rate in higher education. Most people agree that school education should be free, but opinion is divided when it comes to higher education. Is the return to the individual greater than that to society or vice versa? Is it the same for all degrees? This is one of the questions that affects funding. Should the individual pay? Or the government? Or should there be a mixture of funding?
The question of university education has become even more of an issue in the current recession, with many seeing a university education as a way of avoiding, what could be, inevitable unemployment. With this increase in demand, there is increasing pressure on the funding: it is simply not fiscally feasible to fund everyone’s university education. As such, business leaders have advised a rise in tuition fees. Students could be charged thousands more and made to face a higher interest rate on any loans. This highly contentious issue is considered in the articles below.
Charge students more, say bosses BBC News (21/9/09)
Middle class university students ‘should pay more’ Telegraph (21/9/09)
Elite universities plan to cut UK student numbers amid funding drop Telegraph (20/9/09)
Fee rise must aid poor students BBC News (27/7/09)
Loans delay for 150,000 students continues Daily Mail (19/9/09)
‘No fee degrees’ university plan BBC News (8/7/09)
‘New market’ in education (podcast) BBC Today Programme (8/7/09)
Bring back tuition fees for middle class students Scotsman (11/9/09)
CBI advises raising university fees to £5,000 a year to tackle funding crisis Guardian (21/9/09)
University ‘way out of recession’ BBC News (8/9/09)
Schools secretary Ed Balls under fire over education cuts Mirror (21/9/09)
Students should pay more – CBI (video) BBC News (21/9/09)
Questions
- Why is education described as a merit good? Explain the characteristics and why it constitutes a market failure.
- Identify any externalities involved in higher education. Do they imply that the free market would led to a level of higher education that is above or below the social optimum?
- List the costs to society of a university education. (Think about opportunity cost).
- What are the arguments for (a) only the individual funding their university education (b) the government funding university education (c) a combination of both?
- Is it a reasonable policy to increase university fees? If so, should students receive loans to cover this increase? If not, what do you think is an alternative option to help this funding crisis?
Economic growth is normally seen as the most important long-term macroeconomic objective. Without economic growth, so it is argued, people will be unable to achieve rising living standards. But, according to Nicholas Stern, Professor of Economics and Government at the London School of Economics, former head of the Government Economic Service, former World Bank chief economist and author of the 2006 Stern Review on the Economics of Climate Change, countries will need to reconsider making growth the goal of their societies.
Speaking to students at the People’s University of Beijing, Lord Stern warned that unless substantial cuts were made in carbon emissions, the effects of global warming would have devastating effects on people’s lives. As the Stern report stated, “Climate change will affect the basic elements of life for people around the world – access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms.” The implications are that countries must making cutting carbon emissions a priority and must reconsider their growth strategies. In his speech he said that “Beijing should shift the economy away from heavy industry, manufacturing for exports and other high-emission activities. Instead, it should focus more on domestic consumption, service industries and low-carbon technology.”
So should countries rethink their economic objectives? Is economic growth either a necessary or sufficient condition for an increase in human welfare? Read the articles and then consider the questions below.
World must help China shift to clean growth-Stern Reuters (11/9/09)
Stern Truths: Some Parts of China Have Western-Style Emissions Wall Street Journal (11/9/09)
Stern: Rich nations will have to forget about growth to stop climate change Guardian (11/9/09)
Stern words in Beijing Hot Topic (New Zealand) (13/9/09)
Questions
- Are the objectives of economic growth and tackling gobal warming necessarily incompatible?
- What would a low carbon growth strategy look like?
- What would you include in the opportunity costs of maintaining a high growth strategy compared with switching to a lower carbon, lower growth one?
- Consider whether economic growth is (a) a necessary condition; (b) a sufficient condition for a growth in the wellbeing of the human race.
The US Institute of Medicine of the National Academies has recently published a 92-page on report on childhood obesity and the use of taxes on junk foods to tackle the problem. In the report, titled Local Government Actions to Prevent Childhood Obesity, “a panel of experts suggested such taxes could play an important role in helping children make healthier eating choices”.
Meanwhile, in Australia, the Federal Government’s preventive health taskforce argued, amongst other things, that “junk food advertising should be phased out, the cost of cigarettes should be more than $20 a packet, and soft drinks and cask wine should be hit with higher taxes”.
So how effective are higher taxes in achieving a reduction in ill health associated with eating, drinking and smoking? If adopted, what is the socially optimum design and rates of such taxes? What other complementary policies could be adopted? The following articles consider the issues.
More support for a junk-food tax Los Angeles Times (2/9/09)
Tax junk food, drinks to fight child obesity-report Reuters (31/8/09)
Could Raising Taxes on Junk Food Curb Obesity? eMaxHealth (2/9/09)
Junk food and tobacco under fire The Age (Australia) (2/9/09)
What price health? The Australian (2/9/09)
Questions
- For what reasons does the free market fail to achieve an optimum level of consumption of junk foods, alcohol and cigarettes?
- How would you determine the socially optimum level of consumption of such products?
- How are the price, income and cross-price elasticities of demand, and the price elasticity of supply, relevant to assessing the effectiveness of taxes for reducing the consumption of unhealthy products?
- What determines the incidence of taxes on unhealthy products?
- What other policies would you advocate to tackle the problems associated with consuming unhealthy products? How would they affect the price elasticity of demand for such products.
- To what extent do the objectives of social efficiency and equity conflict when designing appropriate policies to discourage unhealthy consumption?
This podcast is from the Guardian. The first part consists of a report by Anna Dixon, Director of Policy at the King’s Fund (an independent ‘think tank’). The podcast considers “the economics of healthcare. Why are the Americans so opposed to adopt a system of socialised medicine? Does the NHS make economic sense? And how will the squeeze on public finances impact upon our most cherished of services?”
The Business: The NHS and economic recovery Guardian podcast (19/8/09)
Questions
- How do the UK and US healthcare systems differ?
- Why does the US system result in greater healthcare inequality than the National Health Service system in the UK?
- For what reasons may Americans resist healthcare reform?
- What lessons can be learned by the NHS from the US healthcare system?
- Compare the issues of monopoly power of drug companies, doctors and hospitals in the two systems? In which system is the countervailing power of purchasers likely to be greater?