Public Economics 2
Econ 742
WVU, Spring 2017 

Professor Roger D. Congleton
Old Roman
                      Capital (the Palatine) 
PDF Syllabus with More Extensive Reading List and Details about Grades

 Class Room: B&E 401  Class Time: M&W: 1:00 - 2:15
Snow News 
Suggested Reference Library:

Besley, T. and T. Persson (2011) Pillars of Prosperity. Princeton: Princeton University Press.

Congleton, R. D. (2011) Perfecting Parliament. Cambridge: Cambridge University Press.

*Congleton, R. D. and B. Swedenborg (2006) Democratic Constitutional Design and Public Policy. Cambridge Mass: MIT Press.

Knight, F. H. Risk Uncertainty and Profit. (1985/1921) Midway Reprint edition, University of Chicago Press.

*Hillman, A. L. (2009) Public Finance and Public Policy, Responsibilities and Limitations of Government. Cambridge: Cambridge University Press

Olson, M. (2000) Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York: Basic Books

*Tanzi, V. and L. Schuknecht (2000) Public Spending in the 20th Century: A Global Perspective. Cambridge: Cambridge University Press.

Stigler, G. J. (ed.) (1988) Chicago Studies in Political Economy. Chicago: Chicago University Press.

Martinez-Vazquez and Winer, S. L. (Eds.) (2014) Coercion and Social Welfare in Public Finance. Cambridge: Cambridge University Press. 

* Strongly Recommended

  Office Hours: 
Monday, Tuesday, Wednesday 2:30-3:30,
and by appointment
Class Notes,  available via this website, (will be updated during semester)
At the time when classical micro economic textbooks were written government spending was on the order of 10% of GDP and government policies could be ignored. Today, direct government expenditures range between 40-60 percent of GDP in the West. Much of the private sector is influenced by that spending. In addition, there are a wide variety of regulations that affect returns from food production, home construction, healthcare delivery, and the financial markets. Even the basic property rights that underpin private market activity are substantially products of legislation, government policy makers (e.g. judges), and their associated bureaucracies. For all of these reasons, public economic is central to understanding the manner in which contemporary markets operate.
This course develops the core tools necessary to understand the inter-play between contemporary economic and political systems, with the aim of explaining why particular public policies are selected and how they effect economic activity. It is for the most part a lecture-based course, although some classes will have a seminar format. The first third of the course, provides an overview of the core models of public policy formation. The second focuses on the emergence and growth of the welfare state in the twentieth century. The last third explores the role of institutions in constraining public policy and issues associated with normative theory (welfare economics).
TENTATIVE COURSE OUTLINE (multiple lectures on most topics)**

Part One: Mainstream Models of Public Economics and Policy Formation

9 - Jan
(1.) Introduction: What is Public Economics?

Measuring the size of the Public Sector, Trends in government finance and regulation in the West.

Methodological Issue: 
Can public policy ever be regarded as an exogenous variable? If public policy is endogenous, how should it be modeled and estimated? On the meanings of causality and its relevance for modeling and estimation. Models as tractable simplifications. The Growth of Government in the 20th century. (1 lecture)

Congleton (2001)
AH: 1 T&S 2, 5

GAO overview of
US Gov Finances (report)
US Statistical Abstract
World Bank Statistics
Buchanan (1949)
11 - Jan
(2.) On the Microeconomics of Markets, Economics, and Public Goods: The Core of Neoclassical Public Economics. 
The geometry and mathematics of the net benefit maximizing model of rational choice.
Competitive markets, efficiency, externalities, and public goods.
The burden of taxation. Pigovaian taxation.
The efficient supply of Pure Public Goods, Samuelson and Lindalh Taxes. (5 lectures)
AH: 5, 2
Geometry / Calculus / Prices
Feld and Heckemeyer (2011)
Samuelson and Public Goods (1954), Coase 1960
Demsetz (1970)Dahlman (1979) , Sandler (2014)
30 - Jan
(3.) Rational Choice Politics and Democratic Public Policy, Why Aren't Public Policies Perfect?

Overview: from Public Finance to Public Choice and Political Economy / Making Fiscal Policy Endogenous

The median voter theorem. Electoral models of public policy formation: the median voter model and public finance. Addendum: Some Problematic Properties of Majority rule

Interest Group models of public policy formation: Olson, Chicago, and Virginia models/ Rent Seeking and Rent Extraction (6 lectures)
AH: 9.1
Median Voter: Congleton (2002)
Downs (1957), Logan (1986)
Buchanan (1998), Harstad(2005)
Buchanan (1998, ch. 1-3)
Grofman (1983), Congleton (2007)
Ostrom (2014), C & S (intro)

Olson (1965), Congleton (2015)
Tullock (1967), Peltzman (1976)
Becker (1983), McChesney (1987), Hillman and Riley (1989)
Coates and Hekelman (2003)
Congleton and Lee (2009) Stratmann (2017)

20 - Feb
4.)   Rational Choice Theories of the emergence of authoritarian and democratic governments  Two core models: conquest and contract theories of the state (2 Lectures)

AH: 6.1, 6.2,  6.3, 6C
Brennan and Buchanan (1980)
Olson (1993) Congleton (2001, 2011b)

Part II, An Alternative  Perspective on the Electoral Demand for Public Policy: Social Insurance and Crisis Management

27 - Feb
(5.) Risk, Uncertainty, and the Demand for Risk Management: Private and Public risk reducing rules and other strategies. Why do private insurance markets under provide insurance? the lemons market and adverse selection. Governance as partial solution for risk and uncertainty. The civil law as risk management.  (2 lectures)
Knight (1921)
  Akerlof (1970)
Pauly (1986)

Spring Break

13 - March
(6.) Risk, Uncertainty, and the Demand for Social Insurance:  The demand for social insurance. The early "liberal" welfare state and the Emergence of the Welfare (Nanny) State in the 1970s and 1980s: Risk Aversion, Transfers, and Ideological Considerations. Empirical Evidence.  Has social insurance become the "main product" of Western democracy? (1 lecture) CBO report on AHCA
Feldstein (1974)
Browning (1975)
Cutler and Johnson (2004)
Congleton (2007)
Congleton and Bose (2010)
15 - March

(7) The Demand for Crisis Management: Knightian Uncertainty, Surprise, and Crisis Management. What is a surprise? What is a crisis? Personal Crises, Public Crises. Crises induced by policy mistakes. Limits to private crisis insurance. (1 lecture) [chapt 4, 7]
Knight (1921)
Brecher (1979), Carroll (2000 )
Congleton (2012)
Reinhart (2011)
20 - March

Take Home Exam Distributed (Click Here)
(8) Uninsurable Risks: On the Limits of Social Insurance: Difference between insurable and uninsurable risks, Beyond the normal insurance market problems: unknown risks and uncertainty. What happens when insurance is sold or provided for such risks? AIG and Ireland's banking crisis. Can one have too much insurance? (1 lecture)
Doherty and Schlesinger (1990)
Jaffee and Russell (1997)
Congleton (2012)

Part III Normative Theory and Public Policy

27 - March
(9) Evaluating Public Policies: Normative Economics

The Utilitarian Foundations of Contemporary Welfare Economics, Alternatives to Utilitarian Philosophical Bases, Contractarian Theory, Natural Rights, Conventionalism, Lindalh vs Samuelsonian taxation  Ethics and Public Policy: the Positive Study of Ethics
(1 Lecture, and 1 Round Tables).
AH:  2.1, 5.2;
T&S 3, 5
Samuelson and Public Goods (1954)
Mishan (1959), Bohanon (1990), Besley and Coate (2003),  Buchanan (1987), Feld and Frey (2002), Congleton (ch. 11)
1 - April Take Home Exams Due Via Email (
3 - April
Take-Home Exams Returned and Reviews / Paper Workshop Paper Topics

Part IV Constitutional Political Economy: Institutions and Public Policy

3 - April

(10) Institutions, Culture, and Democratic Public Policy

Constitutional Analysis: Two levels of analysis: the choice of rules and behavior under the rules. The early literature explored consequences of institutional variation within federal countries (chiefly the USA and Switzerland). Subsequent research focused on international data.  Economic Freedom and Polity indices as problematic efforts to measure "rules of the game."

Theoretical effects of institutions. Evaluating Institutional Quality. Are institutions exogenous?

The possible role of culture, how culture (internalized norms) affects educational, economic and political choices. Ethical solutions to free riding problems. Ideology as norm and as theory.
(2-3 lectures)

AH: 3.1, 3.2, 4.2
C&S 8 
Knack and Keefer (1997)
Person and Tabellini (2004)
Glaeser, La Porta, Silanes, and Schleifer (2004)
Besley and Persson (2009)
Congleton (2011 , 2013)
Zak and Knack (2001)
  Frey and Stutzer (2000)
Feld and Frey (2002)
5 - April
(11) Fiscal Federalism
Tiebout (1956), Besley and Case (1995), Salmon (1987), Oates (1972)
Mueller on Federalism
12 - April
Course Overview:  / Forrest From the Trees Lecture
24 - 26 April
Student Paper Presentations (15-20 minutes each), Discussion and Paper Workshop / Seminar Format (2 class periods)

2 -May
16-24 Page research paper due midnight via e-mail on an applied public economics topic


 ** A Few Lecture Dates may be changed because of conference travel.