Like other western economists, Stiglitz believes that the main function of government intervention is to make up for market failure. Therefore, the study of market failure has become a part of government intervention theory. The traditional market failure theory, while acknowledging that market competition can reach Pareto optimality under certain conditions, thinks that market mechanism can't solve the problems of externality, monopoly, income distribution and the provision of public goods, so the scope of government intervention should be limited to the above-mentioned "four old articles". Stiglitz challenged this view. His uniqueness lies in that he not only demonstrates the market failure from various superficial phenomena, but also touches on the basic principles of welfare economics, the core of microeconomics, which makes his theory have a solid foundation.
Welfare economics is the core part of western microeconomics, and it is welfare economics that finally completes the argument that market mechanism will lead to Pareto optimality. This argument is based on two basic theorems of welfare economics. The first theorem of welfare economics points out that every perfectly competitive economy can bring Pareto efficiency; The second theorem points out that every resource allocation with Pareto efficiency can be realized through market mechanism. If these two theorems hold, the scope of government intervention will be limited to the above narrow range, and the market will do most things well. It can be seen that the basic theorem of welfare economics provides the most powerful argument for limiting government intervention. Stiglitz, on the other hand, thinks that these theorems are based on wrong assumptions, so the theorems themselves are wrong.
First of all, welfare economics assumes that buyers and sellers in market economy can grasp all information about commodity trading by observing prices, that is, people have complete information. However, Stiglitz believes that the event space of commodity trading is much larger than the price space, and there are not only general events that affect the output of manufacturers, but also many unexpected accidents, such as the general manager's illness and the sudden damage of machines. These hundreds of variables will affect the profit rate of manufacturers, but this can not be quickly shown from the price. In addition, the assumption about utility function is also very important. Gail and Stiglitz (1985) proved that only under a very strict assumption, that is, there must be a "constant absolute risk aversion utility function", can prices convey all information. Once we deviate from this assumption, the price can't fully convey the information. It can be seen that the assumption of complete information cannot be established.
Secondly, welfare economics assumes that there is a complete market. In fact, it costs money to set up a market. If there are countless commodities, accidents and uncertainties in the market, it takes a lot of resources to organize these markets alone. Especially in those markets with strong uncertainty, such as risk market and futures market, it is extremely uneconomical to establish these two completely competitive markets, because uncertainty will bring huge organizational costs. In addition, information asymmetry also limits the completeness of the market. Because the party with information disadvantage is unwilling to trade with the party with information advantage in order to avoid risks and prevent fraud, this greatly limits the scope of the market. Therefore, the assumption of complete market is also untenable.
Finally, welfare economics assumes that the market is completely competitive, that is, every manufacturer is a price recipient. In fact, market competition is more similar to monopoly competition. Due to incomplete information, when a manufacturer raises the price, all customers of the manufacturer will not immediately look for another manufacturer with the same product and lower price, because it costs money to search for information. Similarly, a manufacturer's price reduction will not attract customers from other manufacturers. This allows manufacturers to set prices instead of accepting them. In addition, fixed costs will also cause imperfect competition. Stiglitz (1993) proved that even if there is only a small amount of fixed cost, the number of market suppliers will be greatly reduced, thus making the market competition become incomplete competition.
On the basis of the above argument, greenwald and Stiglitz (1986) used a complex mathematical model to prove that when the market is incomplete, the information is incomplete and the competition is incomplete, the market mechanism will not reach Pareto optimality by itself, which is the greenwald-Stiglitz theorem. The profound meaning of this theorem is that the market failure it defines is based on incomplete information, incomplete competition and incomplete market, which are ubiquitous in reality. Therefore, market failure is no longer confined to the narrow scope of externalities and public goods, but everywhere. This provides a broad potential space for government intervention. In order to make up for the market failure, government intervention should cover all economic sectors and fields, not just making laws and regulations, redistributing and providing public goods.
Second, the theory of government economic function
The universality of market failure inevitably requires the universality of government intervention. However, the popular view of western economics is that the government itself has the problem of failure, and government intervention is often ineffective. In view of this, Stiglitz put forward the theory of government economic function. He believes that government failure is not worse than market failure, and this failure can be alleviated or even eliminated; By adopting appropriate policies, government intervention can bring Pareto improvement.
(A) analysis of government efficiency. Many western scholars believe that the government's various interventions in market failure are inefficient, that is, there is a problem of government failure. Stiglitz acknowledged the existence of government failure and demonstrated it from many aspects, such as reasons and manifestations. However, Stiglitz thinks that government failure should be viewed from another angle. Inefficiency exists not only in government departments, but also in the private sector. No one can fail to make mistakes. The crux of the problem is not who made any mistakes and did what good, but whether there is enough evidence to prove that government failure is worse than market failure. The empirical study of Stiglitz (1988) shows that neither statistical data nor specific cases can prove that the efficiency of the government is lower than that of the private sector. In other words, the efficiency of the government is not worse than that of the market. The same is true in theory. Some people think that government departments will be less efficient than the private sector because of the lack of owners and incentives. Stiglitz believes that the employees of large private companies in the west are not owners, and from the perspective of principal-agent theory, they also lack incentives to maximize profits. In particular, at present, the equity of large companies is highly dispersed, and the equity of company managers is also very small, so it is difficult for owners to control the company. In this respect, there is little difference between the government and private enterprises.
Nevertheless, Stiglitz still admits that for some reasons, the efficiency of government departments is seriously low. These reasons include: lack of competition; There is no threat of bankruptcy; Undertake social goals; Excessive pursuit of fairness, limiting the scope of authority. However, Stiglitz believes that these problems are not inherent in the government itself and can be eliminated through various channels. For example, the government can allow or even encourage competition between government enterprises and private enterprises or within government enterprises; The government can establish a set of procedures to increase the transaction costs related to soft budget constraints and force enterprises to harden budget constraints; The government can make laws and regulations to force itself to abide by its commitments and end inefficient enterprises; Finally, the government is fully capable of controlling the income gap and the intensity of its authority. In short, there is no evidence that the government is inherently less effective than the market.
(2) The comparative advantage of the government. Stiglitz believes that the government is not only as efficient as the market, but also can do many things that the market can't do because of its compulsory function. In this way, the government will have obvious comparative advantages in correcting market failures. These advantages can be divided into four categories:
1. The government has the right to levy taxes. The government, like the private sector, also faces the constraint of incomplete information. The government can influence production and guide consumption through corrective taxation, thus increasing welfare benefits and realizing Pareto improvement. For example, suppose an insurance company realizes that smoking will cause a fire, thus increasing the risk of providing insurance. However, it lacks the information of the insured smoking. When the insured knows this, he will have moral hazard and relax his vigilance against the fire caused by smoking. Although the government dares to lack information, it can restrain people from smoking by taxing cigarettes, thus obtaining welfare benefits due to the reduction of moral hazard.
2. The government has the right to prohibit. With its coercive power, the government can ban an activity, which can bring Pareto improvement. For example, when the fixed cost of some commodities is high, in order to make up for the fixed cost, the optimal pricing mechanism will make the price of some commodities very high, especially when the elasticity of commodity demand is low or the production technology is backward. The market itself cannot eliminate such commodities, but the government can exercise a ban to restrict these commodities from entering the market. According to the analysis of Stiglitz (1980), this can improve welfare.
The government has the right to punish. The government can punish the breach of contract in the market through legislation. Although the contracts concluded between private parties also contain penalty clauses for breach of contract, these clauses are only limited to the provisions on the disposal of the property of the defaulter, and the government can punish those who have no property mortgage. In addition, the government can easily solve external problems such as pollution through punishment, while the solution negotiated between private parties can only be formed under the assumption of zero transaction cost of Coase theorem; In the real world of positive transaction cost, the transaction cost of reaching an agreement between individuals is very high and it is difficult to succeed.
4. Save transaction costs. Without the government, hitchhiking, incomplete information and adverse selection in the market will increase transaction costs, and the government can save these costs through the supply of public goods and the establishment of social welfare system. For example, in order to find out the situation of insurers, insurance companies need a huge operating cost. In contrast, the operating cost of the government social welfare system is much lower.
(3) Measures taken by the government to correct market failure. How to correct market failure? Stiglitz believes that although the perfect competition model in textbooks does not exist in reality, limited competition in market economy can play a role in transmitting information and promoting technological progress. Therefore, monopoly should be actively suppressed and competition should be encouraged in buses and public sectors directly involved by the government. To achieve this, the economic functions of the government should be decentralized while maintaining the advantage of centralized decision-making. That is, public services are handed over to different government organizations to operate, so that people can compare their efficiency in the competition of different government organizations. Regarding the inefficiency of resource allocation in market economy, Stiglitz proposed that the government's public policy should mainly focus on the function of resource allocation, and improve the efficiency of resource allocation by giving play to the government's redistribution function. The specific method is to implement the optimal corrected tax rate for all commodities, which should be based on the estimated supply elasticity and demand elasticity (including all cross elasticity) of all commodities. Stiglitz also admitted that it is difficult to obtain this information, so he pointed out that the government should focus on bigger and more serious market failures, such as capital market and insurance market.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ In a market economy, the supply and demand of goods and services are influenced by price laws and free market mechanisms. Market economy brings economic growth, but it will lead to inflation. The recession after the climax makes the economy stagnate or even retrogress, which has a serious impact on social resources and productivity. Therefore, macro-control focuses on the economic operation of the whole society and achieves the purpose of planned economy by artificially adjusting supply and demand.