In the article, “What should government do? Problems of Social Cost, Externalities and all that”, the authors, Michael Reksulak and William Shughart, tend to focus mainly on the work of Gordon Tullock, who expounded more on the aspects and matters to do with what the government should in ensuring equilibrium in the state of the economy. The article starts by comparing a centralized and decentralized government. It explains the role and types of governments and how they function to achieve their set goals and objectives. It also examines the public decisions and compares them to public goods with a social cost. Subsequently, the non-internalized costs of handling externalities are analyzed and the effects of positive and negative externalities in the economy.
My opinion of the article is that it is well organized and vividly describes the externalities the government handles to ensure effective service delivery. The type of government ruling a nation should not be an excuse for the choices made in day-to-day activities. The work of Tullock was instrumental in writing with the article, where the discussion of government activities and how they affect the day-to-day actions of citizens. Dealing with the efficiency of results in the political domain hangs on the query of how well the decisions are made (Reksulak & Shughart, 2012). Subsequently, the cost of handling externalities is well known by the government and the nation's businessmen.
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The article relates well to my experience in the public sector. Having had worked with the government on several occasions, I realized that government spending remains an essential aspect to consider before approving any budget estimates. The cost of running externalities is relatively high, and the government must plan effectively before making any desirable and informed decisions. The work of Tullock was exemplary as he entirely viewed the government as a legal entity and an economic regulator. However, much research needs to be conducted to factor in all the aspects of government spending. Public spending and budgetary estimations require economic specialists who are qualified and experienced to make strategic decisions.
The points of Reksulak and Shughart can be applied to the public sector in various ways. The social costs can be explained as the private costs endured by people directly involved in a transaction in line with the external costs endured by third parties who are not incorporated in the transaction. Any government tends to accurately come up with these costs and distribute them equally per capita income. On the other hand, an externality is any cost or profit triggered by a product that is not fiscally incurred or received by the same producer (Rahwan et al., 2012). The social cost and externalities are essential in developing an economic equilibrium and the opportunity cost. The two aspects are essential in making informed economic decisions.
Externalities are often reflected upon as financial concerns associated with the failure of the economy to manage equilibrium prices. The negative externalities are the harmful effects of withdrawals in the economic flow of goods and services. An example is that of acquiring electricity from an organization that pollutes the air. In that case, the cost of electricity will be the one paid and but will not feature the damage caused by the pollution. Subsequently, the positive externalities are the beneficial effects that come with the cost. An example is that of painting a house before sale. The benefit is increasing the home's sale value and making the neighborhood more desirable, increasing its market value. The negative externalities ensure that the manufacturer does not bear all the costs. The positive externalities ensure that the buyer does not get all the benefits and cause a decrease in production.
References
Reksulak, M., & Shughart, W. F. (2012). What should government do? Problems of social cost, externalities and all that. Public Choice , 152 (1-2), 103-114. https://doi.org/10.1007/s11127-011-9850-7
Rahwan, T., Michalak, T., Wooldridge, M., & Jennings, N. R. (2012). Anytime coalition structure generation in multi-agent systems with positive or negative externalities. Artificial Intelligence , 186 , 95-122. https://doi.org/10.1016/j.artint.2012.03.007
