Economy of Ireland (EC2020) - Tutorial 4 - MT Term Teaching Week 6

Economy of Ireland
    (EC2020)
  Tutorial 4 – MT Term Teaching Week 6

Plan for today

• Any issues/questions?
• C1 (i) What is the rationale in principle for government in
  a market economy?
• C1 (ii) Why must some of these functions be applied
  increasingly at a global and in particular in recent years at
  an EU level?
• C1 (iii) What further issues arise in relation to EU
  integration?
• Class Test

C1 (i)

C1 (i) What is the rationale in principle for
government in a market economy?

• Think of the absurdity of no government!

  • Anarchy
  • Hobbesian state of nature

C1 (i)

• (a) Referee - sets the rules of the game.

• i) A central authority and legal system are needed
  for contracts that govern economic activity - - design
  and enforce rules that allow economic activity to
  take place
  • Property rights etc.

• ii) Empirical evidence
  • no rule of law leads to poor economic performance (insights
    from institutional economics)

C1 (i)

• (b) Correct Market Failures/efficiency
•   i) Pure public goods (non-rival and non-excludable)
    • infrastructure, military etc.
    • non-excludable prevents market provision – pay for with tax

•   ii) Externalities
    • Positive: rival & somewhat excludable
    • Negative: producer isn’t paying (all?) costs
    • Under/Over produced

• iii) Monopoly power
    • Firm maximizing behavior - prices too high, output too low

C1 (i)

• iv) Imperfect information
  • Risk assessment - - incomplete credit/insurance markets
  • Provision or subsidization

• - But, government failure?
  • It’s not clear that there is a more efficient outcome - electoral
     pressures, lobbying, inefficient public sector

• (c) Redistribution:
• Efficient outcome is not not necessarily the ‘fair’ outcome
  (general equilibrium theory).

C1 (i)

• i) Success as a random walk
  • Distribution depends on luck e.g. A lot of economic
    outcomes are random. E.g. weather.
  • Hence voters demand redistribution

• ii) Other arguments for redistribution

• iii) Caveats:
  • E.g. too high taxes can distorts incentives
  • E.g. mobile factors may move (EU).

C1 (ii)

C1 (ii) Why must some of these functions be applied
increasingly at a global and in particular in recent years at an
EU level?

• If you had the power to solve one issue in the world what
  would it be? Could this issue be dealt with at a national level,
  or does it require a level of super-national power?

• Always ask what is the best level of governance for a particular
  issue to be dealt at – e.g. global, supra-national (EU), national,
  local, individual – subsidiarity principle and efficiency
  arguments (bi-lateral VS multilateral and scale economies)

• Lots of information here you have to choose what to use!!!

C1 (ii)

• a) A global marketplace needs global rules
  • Trade
  • Banking
  • Investment
  • Health and Safety
  • Airline Regulations
  • Infections and Viruses

• b) Easier to achieve common goals
  • E.g. Competition policy in Europe

C1 (ii)

• c) Co-ordination issues
  • E.g. Tax (game theory idea)

• d) Externalities
  • Environmental policy( has common goals but incentive
    issues)
  • Nuclear power
  • Market solution?

• e) Free rider problem
  • Definition

C1 (ii)

• Some Other International Issue Areas

• 1) Global foreign policy issues
  • Stateless Wars
  • Global sanctions
  • E.g. Russia/Ukraine, Iran, Syria

• 2) Regulations for ‘common areas’ – e.g.
  international waters and space

• 3) Migration policies

C1 (ii)

• 4) Global inequality and poverty
  • High global inequality can be bad for its own sake (Rawls)
  • Can lead to global instability
  • Can lead to migration issues

C1 (ii)

• Finally:

• Although there is no international government to regulate and
  enforce rules, there are some supra-national bodies
  • EU
  • WTO
  • UN

• How do they enforce rules?
  • Globally there is a reliance on norms and peer pressure.
    However, some bodies (EU, WTO) can enforce rules through
    punishments/fines etc.

C1 (iii)

• C1 (iii) What further issues arise in relation to EU
  integration?

C1 (iii)
•   Positive Story

•   Only advanced, international intergovernmental structure in place

•   Huge progress on economic front

•   Goods, services, investment and people (a large social aspect and
    more controversial)

•   Genuine world ‘player’ with the second largest market in the world

•   Efficiency gains

•   Greater ability to deal with some issues

C1 (iii)
•   Negative Story

•   This is where you will find difficulties with further integration…

•   The free movement of people in the common market

•   Democratic ‘deficit’ issues

•   Preferences may/are different in some areas - - e.g. taxation policy.
    So, negotiation/bargaining can be difficult

•   Incomplete integration can cause problems - - banking system was
    heavily linked yet policy/oversight etc. was not. Migrate crisis,
    Ukraine …

•   Institutional structure has issues - - voting methods/vetoes…

C1 (iii)

• Case study of pros and cons with a potential Brit-
  exit - - which has potentially serious consequences
  for Ireland, as well as Britain and other EU states

Class Test
•   The Class Test takes place on November 17th at 15.15 in the Burke
    Theatre.

•   Test is worth 25% of your overall grade.

•   There will be 5 questions on the test (from the 9 we have covered in
    tutorials -- 3 in A2; 3 in B1; 3 in C1). Please make sure to answer all 5!

•   You will have approximately 15 minutes per question

•   Prepare answers in advance and practice writing them out

•   Remember your answers shouldn’t be information driven. You should be
    using information to tell a story/make an argument (you don’t have to
    give every argument, just the one (s) you think are most relevant/best)

•   And please, please structure your answers for clarity!