Public Economics

Course Objective

This course has two central goals. It elaborates on the fundamental

economic principles that were discussed in the first two years

(especially Introduction to Economics and Environmental Economics). The focus is on

the microeconomic principles that can economically legitimize

governments to intervene and that are needed to understand the behavior

of the government as an actor in the economic process. Ample attention

will be given to issues in the area of sustainable development,

infrastructure policies, the functioning of (regional) labor markets and

spatial planning. Furthermore, the course provides insights in the way

in which fundamental theoretical and empirical economic results can be

used in day to day policy making.

The attainment goals of this course are:

• You have a good understanding of situations in which markets can

yield economically optimal outcomes and those in which markets can fail.

• You know the core tasks of the government and you know under

which conditions there is a role for the government to correct market

failures. You are also aware of the reasons behind government failure.

• You know the policy instruments that the government has at their

disposal to influence the outcome of market processes and you are

familiar with the pros and cons of the various instruments.

• You are familiar with the concept of fiscal federalism and can

use it to determine what the optimal spatial level of policy making is.

• You know the key building blocks of (social) cost-benefit

analysis and you can provide a high-quality evaluation of existing cost-

benefit analyses using standards for good practice.

• You know the valuation techniques used by economists to perform a

cost-benefit analysis.

• You know the alternatives for cost-benefit analysis to evaluate

policies such as multi-criteria analysis and cost effectiveness analysis

and you are aware of the pros and cons of such alternative tools.

Course Content

The free market does not always deliver socially optimal outcomes. In
such situations where markets fail, there is a potential role for
government intervention. At the same time, government intervention can
also have (sometimes unintended) side effects. In this course, the many
aspects of government intervention in the economic process including its
logic and legitimacy are discussed. Topics that are central are: (i) the
role for the government in the economic process, (ii) externalities,
(iii) public goods, (iv) labor markets and income distribution
(interpersonal and interregional), (v) optimal taxation, (vi) fiscal
federalism and subsidiarity and (vii) location choice of firms and
people. Much attention will be devoted to methods for policy evaluation,
with special emphasis on cost-benefit analysis.

Additional Information Teaching Methods

There will be two regular lectures (of two hours each) per week in which
the course material is discussed in an interactive way. Furthermore,
there is one tutorial per week (also two hours) in which assignments are
discussed and students give presentations.

Method of Assessment

Written exam with open questions (60%) to be completed with a minimum
score of 5.0. Presentation on topic of own choice (related to the
course) and weekly assignments (40%).

Literature

Varian, Intermediate Microeconomics, Norton (8th edition), chapters 14,
33, 34 and 36.

Hindriks and Myles (2006), Intermediate Public Economics, MIT Press,
Cambridge, MA.

Eijgenraam et al., Evaluation of Infrastructural Projects: Guide for
Cost-Benefit Analysis. Section I: Main Report (in Dutch: Evaluatie van
grote infrastructuurprojecten, deel I ("leidraad OEI")).

Information on additional literature (papers) will be announced at the
start of the course.

Additional Information Target Audience

Third year bachelor students (following a minor with an economic
orientation and basic knowledge on microeconomics).

Recommended background knowledge

Inleiding Economie (year 1) and Milieu-Economie (year 1)