1)    Political theory

a)     libertarian

i)        Natural rights- Nozick. nightwatchman

ii)       Empirical – Hayek, friedman. market is impersonal – so cannot be unjust.

b)    liberal

i)        utailitarian – efficiency

ii)       Rawls – justice primary

c)     socialist – equality, freedom, fraternity. Welfare state= ransom

2)    Economic theory

a)     Efficiency – a common aim. Methods:

i)        Regulation – quantity restriction – hygiene

ii)       Finance – subsidies, taxes, NHS

iii)     Public production – defence

iv)     Income transfers – pensions

v)      Measurement of welfare basis:

(1)   full income – money + non-money=potential consumption

(2)   non-money income not measurable and not correlated with money

(3)   time period hard to meaasure

(4)   size of household

vi)     Invisible hand provides reasons for intervention:

(1)   perf info. Nature, prices etc. When fails mkts can make solutions or state.

(2)   Future info. Insurance.

(a)    Demand

(i)      non-linear utility

(ii)    pooling risk

(iii)   credit risk of insurance company + monitoring

(b)   Supply

(i)      Get an actuarial premium.

(c)    problems with supply

(i)      individual risk must be independent

(ii)    outcome must not be certain

(iii)   probability must be estimatable. inflation problems with pensions. invest into inflation adjusted bonds

(iv)  adverse selection – purchaser conceals information

(v)    moral hazard – manipulates the probability (carelessness) or size of claim (third party payment)

(3)   Perf. comp. input, output, capital mkts. Price taking&equal power.

(4)   no public goods – non-rvalness, non-excludability, non-rejectability (cannot chose to consume). Different MC for extra output and user.

(5)   no externalities. Coase – no problem. Fails when property rights not enforceable, large negotiations. Pigovian taax might solve.

(6)   no increasing returns – MC=MR pricing inefficient.

b)    Social justice=equality – another aim Methods the same, reasons:

i)        Forced by the poor to rich, or chosen for altruistic motives.

ii)       Good and bad consumption.

iii)     cash transfers could otherwise provide all necessary intervention, unless public production is good.

iv)     Measurement:

(1)   poverty – based again on full income

(a)    absolute

(b)   relative

(c)    marginal tax rates problem of means testing

(d)   problems with drawing a line, Sen Gini adjusted

(2)   inequality

(a)    equality of opportunity

(b)   which causes of money income differences is inequality (race sex etc). Natural ability (education) problems

(c)    Money overstates coz

(i)      different tastes for money

(ii)    different life cycles

(iii)   income is a random variable, so some difference in point time.

(iv)  children – whether a rise in utility or fall in per capita income

(d)   Lorenz curve, Gini coefficient

(i)      curves crossing

(ii)    only money income, no life cycle

(iii)   data is not consistent over time/between countries

(iv)  Atkinson, Theil – put more weight on low income inequality(=Rawls). No welfare interdependence(Sen).

3)    Cash benefits

a)     Sources

i)        Commodity taxes

ii)       Income taxes

iii)     National Insurance

iv)     Voluntary pension schemes

v)      In Kind transfers

vi)     Redistributive power depends on elasticities

b)    Outlays

i)        Unemployment/Sickness

 

ii)      Pensions

iii)    Non-contributory

c)     Reforms