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77 IRET Policy Bulletin 1 (1999)

handle is hein.taxfoundation/iretpbul0036 and id is 1 raw text is: July 12, 1999 No. 77 AN ECONOMIC ANALYSIS OF THE PUBLIC PROVISION OF GOODS AND SERVICES WITH APPLICATIONS TO HEALTH CARE AND EDUCATION Introduction A great deal of current political discussion among all parties has to do with saving Social Security, shoring up Medicare and increasing funding to public schools. Most of the discussion centers around which particular tax/transfer scheme will produce the best results, while the deeper question of why these services are provided or funded by government rather than private markets is left unasked. It is important to recognize, however, that economic science has developed adequate criteria with which to gauge the probable success or failure of various publicly provided programs. The purpose of this paper is to provide a working understanding of these criteria and to apply them to two policy areas: education and health care. The results suggest that widely accepted beliefs concerning the public provision of these goods come into question when economics is brought into the discussion. The central problems that any economic system, capitalist (market directed) or non-capitalist (government directed) must deal with are what to produce (allocative efficiency) and how to produce it (productive efficiency). The Central Problems of Allocative and Productive Efficiency: Whether or not to Build a Bridge; If So, How Best to Build It Economists often characterize the world as one in which wants are unlimited while the means of achieving those wants are scarce. Scarcity dictates that choices must be made: producing more of some goods means producing less of others. The cost of each choice then is the foregone alternative, which is the good or goods that were not produced. In fact, the economic problem of Institute for IRET is a non-profit, tax exempt 501(c)3 economic policy research and educational Research organization devoted to informing the public about policies that will promote on the economic growth and efficient operation of the market economy. Economics of 1730 K Street, N.W., Suite 910 * Washington, D.C. 20006 Taxation (202) 463-1400 . Fax (202) 463-6199 e Internet www.iret.org

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