Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions

Abstract

[Joseph Stiglitz was a member of the Council of Economic Advisers from 1993-95, and chairman of the CEA from 1995 through February 1997.] Today, I want to share with you some of my thoughts about the possibilities and limitations of government. These thoughts are focused around a simple question: Why is it so difficult to implement even Pareto improvements? Working in Washington, I quickly saw that although a few potential changes were strictly Pareto improvements, there were many other changes that would hurt only a small, narrowly defined group (for example, increasing the efficiency of the legal system might hurt lawyers). But if everyone except a narrowly defined special interest group could be shown to benefit, surely the change should be made. In practice, however, "almost everyone" was rarely sufficient in government policy-making and often such near-Pareto improvements did not occur. My major theme will be to provide a set of explanations for why this might be so. I shall put forward four hypotheses in this lecture, each of which provides part of the explanation for the failure in at least one instance of a proposed Pareto improvement. These hypotheses, like much of the literature on government failures, focus on the role of incentives: how misaligned incentives can induce government officials to take actions that are not, in any sense, in the public interest.

Conflicts Of Interest And The Case Of Auditor Independence: Moral Seduction And Strategic Issue Cycling

“…Current laws have created an inefficient, unethical, and wasteful system. Stiglitz (1998) argues that wise government should strive to create near-Pareto efficient changes. With 280 million citizens in the United States, it is difficult to create changes that have no losers.…”

Customers’ ways of making sense of a financial service relationship through intersubjective mirroring of others

“…Relationships between buyers and sellers have been found important to understand markets from both the perspective of economics 1,2 and relationship marketing…”

Caught between theory and practice: Government, market, and regulatory failure in electricity sector reforms

“…The reforms of sector regulation in developing countries have tended to suffer from low levels of institutional environment in terms of limitations in regulatory capacity, accountability, commitment and fiscal efficiency (Laffont, 2005). As a result, reforms can be ineffective and prone to political capture, becoming a tool of self-interest within the government or ruling elite (Stiglitz, 1998). In contrast, developed countries tend to have more robust institutional framework and arrangements in place as they have high institutional endowments, making the process comparatively more feasible.…”