Public Economics 2
Econ 742
WVU, Spring 2019 

Professor Roger D. Congleton
Old Roman
                      Capital (the Palatine) 
PDF Syllabus with More Extensive Reading List and Details about Grades

 Class Room: B&E 401  Class Time: T &Th: 11:30 - 12:45
Snow News 

Suggested Reference Library:

*Tanzi, V. and L. Schuknecht (2000) Public Spending in the 20th Century: A Global Perspective. Cambridge: Cambridge University Press.

*Congleton, R. D. and B. Swedenborg (2006) Democratic Constitutional Design and Public Policy. Cambridge Mass: MIT Press.

*Hillman, A. L. (2009) Public Finance and Public Policy, Responsibilities and Limitations of Government. Cambridge: Cambridge University Press.

Congleton, R. D. and Hillman, A. L. (2015)
Companion to the Political Economy of Rent Seeking, Edward Elgar.

 Olson, M. (2000) Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York: Basic Books.

Congleton, R. D. (2011) Perfecting Parliament. Cambridge: Cambridge University Press.

Besley, T. and T. Persson (2011) Pillars of Prosperity. Princeton: Princeton University Press.

* Strongly Recommended
  Office Hours: 
Tuesday, Wednesday. Thursday 2:30-3:30,
and by appointment
Class Notes,  available via this website, (will be updated during semester)
At the time when classical micro economic textbooks were written government spending was on the order of 10% of GDP and government policies could be ignored. Today, direct government expenditures range between 40-60 percent of GDP in the West. Much of the private sector is influenced by that spending. In addition, there are a wide variety of regulations that affect returns from food production, home construction, healthcare delivery, and the financial markets. Even the basic property rights that underpin private market activity are substantially products of legislation, government policy makers (e.g. judges), and their associated bureaucracies. For all of these reasons, public economic is central to understanding the manner in which contemporary markets operate.
This course develops the core tools necessary to understand the inter-play between contemporary economic and political systems, with the aim of explaining why particular public policies are selected and how they effect economic activity. It is for the most part a lecture-based course, although some classes will have a seminar format. The first third of the course, provides an overview of the core models of public policy formation. The second focuses on the emergence and growth of the welfare state in the twentieth century. The last third explores the role of institutions in constraining public policy and issues associated with normative theory (welfare economics).
TENTATIVE COURSE OUTLINE (multiple lectures on most topics)**

Part One: Foundations of Public Economics

  8 - Jan
(1.) Introduction: What is Public Economics?

Measuring the size of the Public Sector, Trends in government finance and regulation in the West.

Methodological Issue: 
Can public policy ever be regarded as an exogenous variable? If public policy is endogenous, how should it be modeled and estimated? On the meanings of causality and its relevance for modeling and estimation. Models as tractable simplifications. The Growth of Government in the 20th century. The public choice perspective on public economics. (1 lecture)

Congleton (2001)
AH: 1 T&S 2, 5

GAO overview of
US Gov Finances (report)
US Statistical Abstract
World Bank Statistics
Buchanan (1949)
10 - Jan
(2.) On the Micro and Welfare Eeconomics of Markets, Economics, and Public Goods: The Core of Neoclassical Public Economics. 
The geometry and mathematics of the net benefit maximizing model of rational choice.
Competitive markets, efficiency, taxation, the burden of taxation.
Externalities, Coase and Pigou.
Pure Public Goods and Club Goods. Samuelson and Lindahl on efficient fiscal systems. (4 lectures)
AH: 5, 2
Geometry / Calculus / Prices
Feld and Heckemeyer (2011)
Samuelson and Public Goods (1954), Coase 1960
Demsetz (1970)Dahlman (1979) , Sandler (2014)
24 - Jan
(3.) Rational Choice Politics and Democratic Public Policy

From Public Finance to Public Choice and Political Economy / Taking into account the endogeneity of  Fiscal Policy (.5 lecture)

The median voter theorem. Electoral models of public policy formation, Rational Ignorance and the Condorcet Jury Theorem. (2.5 lectures)

Interest Group models of public policy formation: Olson, Niskanan, Chicago, and Virginia models/ Rent Seeking and Rent Extraction (2 Lectures)

Public Choice and the Normative Properties of Government Policies and Finance, why public policy is less than perfect  (2 lectures) Addendum: Problematic Properties of Majority rule
AH: 9.1
Overview: Congleton (2018)

Downs (1957), Logan (1986)
Buchanan (1998), Harstad(2005)
Buchanan (1998, ch. 1-3)
Grofman (1983), Congleton (2007)
Ostrom (2014), C & S (intro)

Olson (1965), Congleton (2015)
Tullock (1967), Peltzman (1976)
Becker (1983), McChesney (1987), Hillman and Riley (1989)
Coates and Hekelman (2003)
Congleton and Lee (2009) Stratmann (2017)
19 - Feb

Take Home Exam Distributed (Click Here)
4.)  Constitutional Political Economy: The Impact of Institutions on Public Policies.
Constitutional Analysis: Two levels of analysis: the choice of rules and behavior under the rules. Federalism,  gradual emergence of democracy and public finance, empirical evidence
Economic Freedom and Polity indices as problematic efforts to measure "rules of the game."  (4 Lectures)
AH: 6.1, 6.2,  6.3, 6C
Buchanan and Tullock (1962)
Olson (1993),
Feld and Voigt (2003)
Glaeser, La Porta, Silanes, and Schleifer (2004),
Doucouliogos and Ulubasoglu (2008), Leeson (2007),
Congleton (2003, 2013, 2018, 2018, 2019)
26 - February
Take Home Midterm Due (On the foundations of Public Economics)

Part II. Risk Aversion and Public Policy:  Social Insurance and Crisis Management

5 - March
(5.) Risk, Uncertainty, and the Demand for Risk Management: Private and Public risk reducing rules and other strategies. Why do private insurance markets under provide insurance? the lemons market and adverse selection. Governance as partial solution for risk and uncertainty. The civil law as risk management.  (2 lectures)
Knight (1921)
  Akerlof (1970)
Pauly (1986)
Congleton and Bose (2010)
Congleton and Batinti (2018)
Reinhart (2011

Spring Break March 9 - 17 [Public Choice Society Meetings]

19 - March
(6) Uninsurable Risks: On the Limits of Social Insurance: Difference between insurable and uninsurable risks, Beyond the normal insurance market problems: unknown risks and uncertainty. What happens when insurance is sold or provided for such risks? AIG and Ireland's banking crisis. Can one have too much insurance? (1 lecture) Feldstein (1974)
Browning (1975)
Cutler and Johnson (2004)
Congleton (2012)

Part III Culture and Public Policy
21 - March

(7) Culture and Democratic Public Policy

Culture, broadly interpreted affects public policies in a number of ways. Norms and Ideology affect civil law and political institutions and also affect the demand for various public policies directly. Both theory and empirical evidence suggests that culture matters. This are a of research adds sociolological factors to the economic and political factors taken under consideration by political economy.  (2 lectures )
AH: 3.1, 3.2, 4.2
C&S 8 
Knack and Keefer (1997)
Person and Tabellini (2004)
Glaeser, La Porta, Silanes, and Schleifer (2004)
Congleton (2011 , 2013)
Zak and Knack (2001)
  Frey and Stutzer (2000)
Feld and Frey (2002)
Tyran (2004), Hillman (2010)
Besley and Persson (2009)
Congleton (2019)
28 March
Paper Workshop
Paper Topics

April 2 and April 4, Paper Research [European Public Choice Meetings, No Class]

Part IV Round Tables and Contemporary Readings on Public Economics

9 - April
To Be Determined by Class Interest (4 lecture-round tables, 2-4 papers each meeting)
(1)Taking the Con our of ...
Leamer (1983)
Doucouliagos and Paldam (2008, 2018)
(2) Feld et al (2019)
Geschwind and Roesel (2019)
(3) Grofman et al (ppr, apd, pp)
Values and Tax Evation (2019)
(4) De Gustibus (B&S)
New Consumer Theory (L)
23 - 25 April
Student Paper Presentations (20-25 minutes each) / Seminar Format (2 class periods)

2 -May
16-24 Page research paper due midnight via e-mail on an applied public economics topic


 ** A Few Lecture Dates may be changed because of conference travel.