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The aim of this chapter is to consider ways to improve a bureau, assuming that the bureau is worth keeping. We shall consider two possible means of improvement: producing information about bureaus and charging user fees. In part one, we discuss a number of ways to increase citizens' and legislators' information so that they can more adequately judge efficiency. In part two, we explore the efficiency gains that can often be achieved by requiring bureaus to charge user fees if it is possible. Before we begin, however, it is worth reminding the reader of two things. First, we often have good reasons to recommend alternatives to government supply. It often seems more sensible for the government to either get out of the business altogether or to use some means other than direct supply of a good. Second, people who have not carefully studied bureaucratic supply in a democracy often have unrealistic expectations about what a bureaucracy can achieve.

Let us first review the reasons for the inefficiency of bureaucratic supply. In studying the history of U.S. bureaucracy, we saw that it replaced the class system and a spoils system for hiring and maintaining employees. Presumably, there are advantages over those systems, particularly in supplying such services as police and tax administration. We also learned that government bureaucracy can be quite inefficient. Because bureau chiefs depend on politicians for their appointments, they may use their budgets to help the politicians or political parties in their election efforts. In addition, they can take advantage of information asymmetry in order to achieve personal goals, whether they benefit members of the collective or not. They may try to maximize their budgets, causing bureaus to grow beyond their efficient size. A bureau may even get so large that citizens would be better off without it.

We have also learned that many services probably should not be provided by national governments. National governments should not ordinarily provide local public goods and governments are not ordinarily needed or desirable in supplying club goods. If a national bureau exists to supply these goods, we would recommend shutting it down. In other cases, there may be cheaper ways than bureaucracy for the service to be provided. Allowing private firms to bid for contracts may be more efficient than maintaining a government bureau. In addition, a subsidy to demanders, perhaps in the form of a voucher, may be more efficient than a decision to finance a government bureau. We discuss these possibilities in Chapter Eighteen.

People who have not studied Public Choice are often predisposed to believe that bureaucratic supply is efficient. It is easy to understand why such a view is common in the new democracies. Prior to democratization, dictators or ruling parties controlled education and the media. To avoid discontent, these rulers commanded public speakers, schools and news organizations to extol the virtues of their regimes. They aimed to control the people partly by indoctrinating them and systematically distorting facts. After shifting to democracy, the new leaders recognized the value of these tools in helping them and their party. They were not inclined to make radical changes in their education systems. They also tended to retain their "ministries of information," their "ministry of domestic affairs," or some such agency for the purpose of "protecting" the people against unspecified, "undesired influences." They advocated freedom of speech and press as ideals but, for the present, these freedoms existed only within the context of a paternalistic state, to which the people had become accustomed. In many of the new democracies, the evidence of bureaucratic inefficiency is everywhere. Moreover, everyone knows about it. But they blame it on the incompetent or corrupt bureaucrats. "Democracy is in transition," they say. "With the proper guidance of good leaders, our nation will, in time, have competent and honest bureaucrats and our bureaus will be just as efficient as those of the more mature democracies." This, of course, is the benevolent despot view, which we described in Chapter One. Many citizens in the more mature democracies have similar views. They believe optimistically that the problems of bureaucratic inefficiency can be solved by hiring more competent, and perhaps more honest, bureau chiefs and bureaucrats.

Our discussions in Chapters Thirteen and Fourteen suggest that this view is ordinarily unwarranted. In this chapter, however, we are not concerned with the undue optimism of people who have not studied Public Choice. Our goal is to consider some possible reforms in those cases where practically everyone can agree that bureaucratic supply is appropriate.

As pointed out in Chapter Fourteen, a major cause of the inefficiency associated with bureau supply in a presidential system is asymmetric information. Voters, legislators, and even the chief executive lack information needed to adequately evaluate the bureau's performance. To overcome this information deficiency, members of a collective can demand that information about efficiency be produced on a regular basis. One way is to require bureaucrats to submit benefit-cost analyses to the public before politicians vote on the budget. Deceptive accounting for costs can be minimized by creating an independent accounting bureau through which to filter the analyses or by installing a professional monitor. A second way is to require politicians to compare the supply of services in different places. This is possible when the services provided by government bureaus are supplied by other bureaus or by private firms. We discuss each of these in turn.

Whenever a legislator proposes to create a new bureau or a bureau chief proposes to add new services, she should be required to justify her proposal with a benefit-cost analysis. She should also make the analysis available to the public. The reason is that voters have too small an incentive to obtain such information themselves. If benefit-cost analyses are available to the public, anyone can consult them. For example, a newspaper may profit by publishing the information in a news story or an opposition candidate or party may improve his election prospects by challenging the estimates.

It is important to combine this requirement with uniform accounting standards and penalties for failing to meet the standards and for making false statements. Otherwise, requiring benefit-cost reports is likely to raise the costs of bureau supply without any corresponding benefit.

Often a bureau chief has discretion to add new services. This is desirable in some cases, since it allows the chief to quickly respond to changing conditions. In these cases, the benefit-cost analysis must be conducted after the decision to supply the new services has already been made. So long as the cost is not large, it should still be conducted, however, since its results will show whether the bureau chief used his discretion well.

Recommendation: Legislators who propose to create a new bureau and a bureau chief who proposes to add new services to an existing bureau should be required to justify their proposals with benefit-cost analysis and they should make the analysis available to the public. A benefit-cost analysis should employ uniform and respected accounting standards.

Most bureaus supply services on a continuing basis. Their services are expected to continue into the indefinite future. Yet conditions of demand for the services and cost are continually changing. In such cases, previous analyses need to be frequently updated. Since bureaus must submit annual budgets, the updating should be made part of the annual budget process. For example, a new or revised benefit-cost analysis should be carried out each year as part of the budgeting process.

Even if the bureau's benefit-cost report meets the uniform standards set by qualified accountants, such an analysis is still a complex accounting document that requires interpretation. Voters and politicians may be unable or unwilling to decipher their way through the details. Of course interested parties and newspapers may still have some incentive. However, an additional way to deal with the complexity of the report is to create an independent and non-partisan agency to evaluate benefit-cost analyses. Independence and non-partisanship might be achieved by appointing, say, a seven-person board of directors, one of whom is replaced every four years through a supra-majority appointment.

In order to check on the benefits and costs reported in the benefit-cost analysis, the accounting bureau should have the right to inspect all bureau documents without notice. (Exceptions would be made for some police and military activities.) Severe penalties should be meted out to politicians, bureau chiefs, and bureaucrats who obstruct the accounting bureau or who try to manipulate it for their own benefit.

Recommendation: A government should create an independent, non-partisan accounting bureau in order to evaluate legislators' and bureaus' benefit-cost analyses.

An accounting a bureau would have a propensity to over-expand, just like other bureaus. In addition, it would be inclined to secrecy. The propensity to be secretive can be reduced by requiring the agents of the accounting bureau to make all of their evaluations public information, like the judges charged with interpreting the constitution do.

The presence of information asymmetry suggests that efficiency in bureau supply might be improved by installing permanent professional monitors as employees in the bureaus. Such monitors could help to verify the reports of bureaus about their costs. In addition, they could report efforts to conceal information related to evaluating the bureau. To achieve maximum independence, the professional monitors should be associated with either an independent accounting bureau or the constitutional court. In addition, they should be required to make all reports public.

To our knowledge, the policy of installing professional monitors has not been adopted in any democratic system. We can identify two major reasons. The first is opposition from the bureau chiefs and possibly from the chief executive and legislators. If a serious proposal was made to install a monitor in a bureau, the bureau chief and politicians might resist it because it would reduce their ability to achieve personal goals. Second, in spite of the potential benefits, both voters and politicians may expect a monitor to be coopted or be lazy. For example, the bureau being monitored and the beneficiaries of the services might bribe the monitor with favors in order to avoid being reported. Or the monitor may simply not do the job he is hired to do. After all, who will monitor the monitor? Besides these factors, we should realize that the employment of extra personnel adds to costs. For the typical large bureau, the added cost would seem small relative to the loss in efficiency. Ordinary voters may not realize this, however. If so, they may accept the assertion of a politician or bureaucrat that the costs are high and unnecessary.

In the market place, consumers do not try to discover the cost structure of companies from which they buy products or service. They just compare the prices and services offered by competing firms and choose the price-service combination that suits them best. Since we know that a bureau is likely to become inefficient, we would be wise to demand that, when it is possible, politicians and even the bureaus themselves compare each bureau with other similar bureaus. The problem is to find a proper bureau to compare with.

If the service provided by a government bureau is a pure public good, there would be no way to make a comparison. As we have pointed out, however, there are no pure public goods. Most public goods are local. They have a range limitation. This is why there are many local governments. It stands to reason that some of these governments will have more efficient bureaus than others. In some cases, the bureau chief will have exploited his position as much as he can. In others he may not have exploited it at all. If citizens know about the services provided in other jurisdictions, and their costs, they can demand, through their voting power, that a bureau chief either improve or be replaced.

Note that citizens do not need to know a bureau's absolute efficiency in order to determine that it is inefficient. They only need to know from observing similar bureaus elsewhere that some other bureau can supply what citizens regard as more service for the money. Common sense suggests that the demanders of services in one jurisdiction should explore how the same or similar services are supplied in other jurisdictions.

In the United States and Britain, police forces are organized as a series of local monopolies rather than as a national service. As a result, a chief executive, legislature, and even the voters in one jurisdiction can learn about a bureau's efficiency by observing the police in other jurisdictions. The same is true of fire-fighting, aid to the poor, education, health services, and transportation.

It is also possible in the case of some services to compare government supply with private supply, since some services provided by government bureaus are also provided by private companies. In other words, bureaus often supply goods that are partly local public goods and partly club goods. Consider waste removal. In some U. S. communities, this service is supplied directly by the local government. In others, households must buy the service from a private contractor. Citizens would be sensible to compare the deal they get from a government bureau with the deal that private citizens get in the market. It turns out that when such comparisons are made by economists, the government bureaus are almost never as efficient (measured by price and service) as the private companies.

Recommendation: When it is possible, the evaluator of a government bureau that provides services should be required to compare the efficiency of the service with that of the same or similar services provided in other jurisdictions and by private companies.

Many national governments, especially the newer democracies, have nationally-financed bureaus that supply a combination of local public goods and what we might call "national" public goods. Examples are police, healthcare, public welfare, social security, unemployment insurance, communications, and environmental control. Some of the bureaus' activities provide joint benefits for people who live in different parts of the country. For example, the national police administration often supplies centralized, criminal record-keeping, anti-organized crime services, and anti-terrorism services. Such bureaus often provide other services, however, that are best classified as local public goods. For example, the services of ordinary crime detection and apprehension of suspects are usually specific to the residents of a local community. Their supply has little or no effect on people in other localities. It may be best for such services to be financed locally. However, if this seems more costly and if the service is sufficiently important to consumers, bureau chiefs who direct the national supply should compare the supply in one location with that in another location. Each case is different and careful study is required in order to make a proper judgments about the best solution in any specific case.

Decentralizing government supply: shifting the supply of goods from a larger government to a smaller one within a single jurisdiction, such as a shift from supply by a bureau of the national government to supply by bureau of a city government.

If the local and national character of public goods can easily be disentangled and if a distinct local democratic government exists or can easily be created, a possible means of increasing efficiency is to decentralize government supply. Decentralizing government supply means shifting the supply of public goods from a larger government to a smaller one. An example is a shift of fire-prevention services from supply by a bureau of the national government to supply by a local government fire department. Full decentralization of the government supply of a specific good or service means that the national government turns the taxing and spending powers over to local governments. Local legislators, politicians and citizens are in a much better position to determine the amounts of the different kinds of services that are optimal for their jurisdiction and they have a greater incentive to monitor a bureau's actions. The general principle is this. If there is no good reason to believe that a service has the characteristic of national jointness, it should not be supplied by the national government.

It is worth emphasizing that decentralization requires local governments to control both the bureau that supplies the service and the financing. If the national government continues to finance the service, consumers in a given locality have an incentive to over-state their demands to a greater extent than if the service is financed by the local government; since their share of the additional tax burden is small.

Recommendation: If there is no good reason to believe that a service has the characteristic of jointness at the national level, it should not be supplied by the national government.

Once decentralization is achieved, local citizens will have some incentive to demand that their elected politicians make comparisons with other jurisdictions and with the private sector, if possible.

Non-economists also often make the mistake of neglecting the opportunity cost of land. A democratic government may own land that was inherited from a previous government, that was donated to it, or that was purchased for some other purpose. Since this land is already owned, government accountants often neglect the fact that it could be rented or sold. However, proper economic accounting regards the foregone income that could be earned from the land as a cost, since it represents a benefit that is lost when the land is used in a specific way.

Consider a government-owned concert hall in the city. The land might be sold to a private company, which would use it to build a high-priced office building or housing complex. If the opportunity cost of the land is not included as part of the cost of supplying the service, we are unlikely to know whether citizens can benefit by tearing down the hall and selling the land.

There are many examples in which the opportunity cost of the land is disregarded. A government-supplied beach front may be more valuable as a privately-owned exhibition center for sea-life. A country road may be more valuable as farmland. A city street may be more valuable as a walkway for shoppers. A national park may be more valuable for its timber or other mineral resources. Unless the opportunity cost of land is accounted for, it would not be possible in many cases to tell whether its current use is efficient.

Recommendation: When estimating the benefits and costs of government supply, one should be careful not to neglect the opportunity cost of land.

A user fee is a price. Charging user fees involves shifting part of the financing burden from taxpayers to consumers. This is possible, of course, only when consumers can be excluded if they do not pay. Because of this, the goods for which user fees can be charged are not pure public goods; they possess the jointness characteristic but they lack the nonexclusion characteristic. They are club goods. Accordingly, serious consideration should be given to privatizing their supply (see Chapters Seventeen and Eighteen).

Recommendation: Government supply of club goods that yield joint positive externalities from which beneficiaries cannot be excluded should ordinarily be replaced by a subsidies to demanders of the club goods.

User fee: the price charged to a consumer of a durable joint good that is provided by a government.

Regardless of what economists suggest, the fact is that citizens have permitted their governments to supply club goods directly. Examples are parks, fire-protection, immunization against disease, education, roads, and bridges. In such cases, bureaus have the task of deciding what price and under what conditions the club good is made available to consumers. Because governments often supply such goods or services, we now turn to the question of government pricing. The price charged to a consumer for a durable joint good that is provided by a government is called a user fee.

One advantage of charging user fees for such services is political. It reduces the waste of resources that results from the formation of pressure groups. A general policy requiring users to pay user fees reduces the incentive to join pressure groups, which often result in the supply of the service being increased beyond its optimal quantity.

As a general efficiency rule, it is a wise policy in a democracy, other things equal, to reduce the instances in which a larger set of taxpayers pay for projects that benefit only a subset. A user fee often helps achieve this goal.

Another set of advantages of charging user fees is economic. User fees normally provide signals that enable resources to be allocated more efficiently between competing uses. First, they help citizens, legislators, and bureaus determine whether more or fewer resources should be diverted from the private sector to the public sector. Second, they can be used to encourage users to take account of the external costs of congestion. We now discuss the latter advantage.

Recommendation: With some exceptions, a democratic government should minimize the instances in which a larger set of taxpayers pay for projects that benefit only a subset.

To understand how user fees can be used to regulate congestion, suppose that government officials either charge a zero or a very low user fee for the use of some government-supplied service that is subject to congestion. An example is a bridge. If the bridge is in a highly populated area, the result will be crowding, or congestion, which reduces the quality available to everyone. Efficiency requires that the user fee be high enough to cause a consumer to account not only for her share of the cost of supply but also for the external costs she imposes on other users. In the case of bridge services, a user must account for both her share of the cost of the service and the harm due to congestion that she imposes on others.

Note that a congestion charge can increase efficiency even in the hypothetical situation in which a government-supplied good or service has a zero production cost. Consider, for example, a natural bridge. Such a bridge costs nothing to build and we assume that there are no maintenance costs. A user fee can raise the overall benefits from using the bridge even though users must pay the price because the savings in harm due to congestion for the typical user may be greater than the size of the user fee. Besides, the money collected can be used to reduce taxes or to finance some other government-provided good.

Recommendation: Where there is congestion in the use of government-provided services, a user fee should be charged. Economic theory reasons that the fee should be high enough to cause a consumer to account not only for her share of the full cost of supply but also for the external costs she imposes on other users.

Democratic governments are often reluctant to charge prices that are not matched by costs that consumers can readily understand. For example, suppose that a mayor decides to follow an economist's advice by raising the user fee for a government-managed bridge on holidays in order to account for the higher congestion harm. Such an act is unlikely to increase his popularity. In order to gain support for the act, the mayor should fully explain the reason. In addition, he ought to tell citizens as precisely as possible how the increased revenue from user fees will be used. Another possibility is to combine an increase in holiday price with a decrease in the price at other times.

User fees for congested roads can also be adjusted for the time of day. If congestion is mainly a rush-hour problem, the fee should be raised during that time and reduced at other times. If congestion is a round-the-clock problem, as it is on the highways in some newly-developing Asian cities, the revenue raised from user fees could be used to finance new highways and improvements in existing ones.

The improving technology for charging user fees has cheapened the cost of this solution to the road congestion problem. Hong Kong has conducted an experiment in which drivers were informed of the prices for using city streets at particular times. Scanner and computer technology were used to monitor street usage. Drivers could pay for road usage in the same way that they paid for water usage. In the U.S. a similar system is used for some long-distance highways and limited-access highways in major cities. "Tolls are recorded by scanners reading credit-card sized windshield tags, and users receive a monthly bill, much like a telephone or utility bill."

Figure 15-1

DISTRIBUTION EFFICIENCY

We have recommended user fees to reduce congestion. Often, however, a government tries to reduce congestion in a way -- by regulating access. This refers to a policy of limiting access to what government agents determine to be the optimal number of users. We can represent this idea with figure 15-1. We show consumer demand by the curve D. Consumers demand an amount of q₂ at a zero price. For example, q₂ might refer to the number of people who would use a government-supplied park on a particular holiday if the user fee was zero. Let us assume that so many people would use the park that each one would impose some external harm on the others.

Now suppose that in order to achieve the optimal amount of congestion, government economists decide that q₁ users should be allowed to use the park on a specific holiday. To limit access without charging a user fee, the government would have to regulate in order to ration the quantity that it decides to make available. A popular way to ration is first-come-first-serve. Suppose then that the government distributes park access according to this criterion.

Economists recognize two likely consequences in relation to rationing by user fees. The first is an additional transactions cost. To understand these costs, let us try to put ourselves in the shoes of these highest-demand users who would be willing to pay a user fee of p₁ or higher. Because they attach higher money values to the use of the park, they would want to arrive first. If access was determined by charging a user fee, the high-demand users could arrive at any time they wanted. However, because access is determined on the basis of first-come-first-serve, they must arrive at a time that is less desirable. The loss in satisfaction due to the inconvenience is one type of transaction cost. It is the demander's cost of getting into a position where he can become a user of the service at a zero user fee.

The presence of transaction costs in cases where they need not be incurred is a source of inefficiency, since the presence of transactions costs mean that alternative uses of resources must be given up. A high-demand user who decides to arrive early in order to position himself to get access to the park gives up opportunities to use his time in other things. Another type of inefficiency in distribution inefficiency. This refers to a situation in which a good or service is not distributed to the demanders who attach the highest value to it. For example if A would gain $20 worth of satisfaction from having access to the park, yet access is given to B, who only values it at $5, the distribution inefficiency is $15. If park access were distributed on a first-come-first-serve basis, distribution efficiency would be achieved only if the highest demand users were the first to arrive. Referring to the graph, the quantity q₁ would be distributed to those who would have been willing to pay an admission fee of p₁. This is unlikely, however. This is because the highest-demand users are likely to be more wealthy and because more wealthy individuals ordinarily have a higher opportunity cost of time and inconvenience.

Distribution inefficiency: a situation in which a good or service is not distributed to the demanders who attach the highest value to it.

We now turn to the incentives that are present when there is distribution inefficiency. People normally have an incentive to remove distribution inefficiency by retrading. In this case, high-demand buyers with a high opportunity cost of waiting or inconvenience might offer to buy access to the park from those with low opportunity costs. In fact, the former might hire low opportunity cost individuals to wait in line in their place. This would reduce both the cost of waiting and inconvenience and the distribution inefficiency. However, since retrading itself requires transactions costs, what actually happens is that the additional retrading costs are substituted for waiting and inconvenience costs and the distribution inefficiency. The result of retrading is that the full cost paid by high-demand consumers might be close to p₁ per unit anyway. The difference is (1) that the government would not receive the money and (2) that resources would be wasted carrying out transactions. This waste could be avoided if the government simply charged p₁ in the first place. If the government agents did not know that p₁ is the right price to charge, they might be able to hold an auction in some cases. In others cases, they could experiment with different prices.

Retrading may reduce the costs of waiting and inconvenience and the distribution inefficiency associated with rationing a government-provided club good on a first-come-first-serve basis. However, retrading entails transactions costs.

Naturally, there is likely to be much resistance by users of government services to a new policy of charging or raising user fees. It is not easy to reduce this resistance. However, it is possible to promote a counter-resistance. One way is to show taxpayers, particularly those who do not use the service, how much they will save if user fees are charged. For example, if the user fee is used to reduce congestion, the economic principle should be clearly explained to users. Suppose that a fee is charged for bridge crossings. Then users should be told what would happen if the fee was reduced by just enough to cause one additional bridge crossing. They should be told that the total harm due to additional congestion is greater than the lower fee. By raising the fee, to its optimal level, the bridge authority reduces the total congestion harm by more than the loss of benefit to the person who causes the damage.

User fees can also be introduced gradually. The first step might be to charge a fee only during peak periods in order to reduce congestion. Once consumers become accustomed to paying fees during the peak periods, they are likely to more readily accept a system where they must pay a fee during non-peak times.

It is possible that many of those who must pay a user fee are among a special class of people who the majority of members of the collective aims to help for other reasons. For example, a particular park may be especially useful to the elderly or small children. Proponents of charging a user fee for the park would face opposition from voters who believe that these groups deserve special benefits. This problem may be partly solved by giving members of these special groups admission vouchers, or tickets. Upon receiving the vouchers, the park authority could exchange them with the government finance department for money or financial credits for accounting purposes. Other users of the park, who were not members of a special group, would still have to pay the full user fee. This is a kind of partial voucher system. We discuss a more complete voucher system in Chapter Eighteen.

Ways to reduce resistance to user fees:

1. Clearly explain the benefits and costs to users.

2. Introduce them gradually.

3. Coopt concern for special classes of users by offering them vouchers.

1. “The mature and prosperous democracies of modern times employ workers in large bureaucracies to help supply public services. Therefore, bureaucracy must be an efficient way to supply public services.” Evaluate this argument.

2. Explain how requiring bureaus to submit benefit-cost analyses before they add new services might improve the efficiency of a bureau. (It is not sufficient to say that such analyses would give information to politicians.)

3. Cost benefit calculations of spending proposals are complex. Even if bureaus are required to submit them, the bureau chief could easily deceive readers of them. According to the text, how can such deception be reduced?

4. Suppose that legislators want to create an accounting bureau to evaluate the cost-benefit analyses submitted by bureaus. How could the legislators help make the accounting bureau independent and non-partisan?

5. According to the text, an independent accounting bureau would have a tendency to expand and to be secretive. How can this tendency be countered?

6. The textbook argues that many goods and services that are supplied by national governments should be decentralized. Select a good or service that seems to be a good candidate for decentralization. Then describe the steps that would be necessary for the decentralization to occur. Do you agree with the text that decentralization in this case would promote efficiency? Explain by taking account of the text’s arguments.

8. “To monitor bureaus and improve efficiency, the government should require all bureaus to assign one of the workers to be a monitor, who will report the bureau’s activities to the central government.” Do you think that this plan would work? Why? Why not?

9. If professional monitors are installed in bureaus, how can members of the collective help assure that they will be independent?

10. Tell the kinds of comparisons that suppliers of local public goods can be required to make.

11. Describe the different kinds of benefits that might be derived from decentralizing the supply of services that are currently being supplied by a national government bureau, according to the text.

12. Is decentralization a solution to bureaucratic efficiency for all services supplied by a national government? Explain.

13. When it is feasible, charging user fees for government-supplied goods and services has two advantages. One is political and one is economic. Describe these.

14. "The benefit-cost analysis of the National Arts Museum neglected the opportunity cost of land," reported a local economics magazine. By showing that you know the meaning of the concept of opportunity cost, tell what the magazine probably meant.

15. Services provided by government bureaus from which consumers can be excluded often have other, external benefits from which consumers cannot be excluded. Suppose that the external benefits, by themselves, exceed the costs of supplying the service. Should user fees be charged? Explain.

16. Describe how congestion causes inefficiency and how charging a user fee can reduce the inefficiency. In your answer refer to the an individual’s choice to use a road or bridge and to how she calculates her costs.

18. Suppose that government agents have a fixed amount of some valuable service that they want to distribute among consumers. Explain why it would ordinarily be inefficient to charge a zero price for it.

19. Suppose that government agents have a fixed amount of some valuable service that they want to distribute among consumers by charging a zero price. Assuming that retrading occurs, tell how it affects the efficiency loss due to the government redistribution program.

21. User fees are often opposed by voters because the services are used by particularly favored groups, like the elderly or handicapped people. Assuming that individuals who are not members of such groups also use the services, how can such political opposition be overcome?

Gunning’s Address
J. Patrick Gunning
Professor of Economics/ College of Business
Feng Chia University
100 Wenhwa Rd, Taichung
Taiwan, R.O.C.
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