Analyzing the Case for Government Intervention in a Representative Democracy

Abstract

The welfare economic method for analyzing the case for government intervention is often criticised for ignoring the political determination of policies. The standard method of accounting for this critique studies the case for intervention under the constraint that the level of the instrument in question will be politically determined. We criticise this method for its implicit assumption that new interventions will not affect the level of existing policy instruments. We argue that this assumption is particularly misleading in suggesting that political economy concerns must dampen the case for intervention.

JEL Classification: D20, D80, H11, H70, L22, P11