Market Failures & Externalities
Pollution is the classic example of this type of market failure.
What is an externality?
The tax rate you pay on your next dollar of income.
What is the marginal tax rate?
At the top of the hierarchy of evidence, this method has excellent internal validity but is often infeasible.
What is a randomized control trial (RCT)?
In cost-benefit analysis, benefits and costs are generally converted into this common unit.
What are dollars?
A policy that makes someone better off without making anyone worse off is this.
What is a Pareto improvement?
National defense is a classic example of this type of good.
What is a public good?
The share of your total income that you pay in taxes.
What is the average tax rate?
Card and Krueger compared fast-food restaurants in New Jersey with restaurants in this neighboring state to study the minimum wage.
What is Pennsylvania?
Lecture 2 summed up this alternative to CBA as "fast trains to the wrong station."
What is cost-effectiveness analysis?
This criterion says the winners gain enough that they could compensate the losers.
What is Kaldor-Hicks efficiency?
Health insurance markets can unravel in a "death spiral" - that is an example of this market failure.
What is asymmetric (imperfect) information?
Statutory incidence is who writes the check. This is who actually bears the burden of a tax once prices adjust.
What is economic incidence?
This research design exploits arbitrary eligibility thresholds, like a tutoring program for every student scoring 70 or below.
What is a regression discontinuity design (RDD)?
Regulators monetize avoided deaths with this number: what people will pay for a small reduction in the risk of death, scaled up to a risk change of 1.0.
What is the value of a statistical life (VSL)?
Arthur Okun's "leaky bucket" illustrates a tradeoff between these two goals.
What are efficiency and equity?
Bargaining over reclining may be difficult because negotiating with another passenger involves these.
What are transaction costs?
The side of the market that is more _____ bears more of the tax burden.
What is inelastic?
The key assumption in DiD is that the treatment and control groups would have followed these.
What are parallel trends?
These three reasons justify discounting future benefits and costs.
What are impatience, uncertainty, and opportunity cost?
In Lecture 1's example, Person A went from $900 to $700 and Person B from $100 to $250. Economists call the $50 that vanished this.
What is deadweight loss (an efficiency loss)?
If the conditions of the Coase Theorem hold, giving the right to recline to the passenger behind rather than to the recliner leaves the efficient outcome unchanged, but it does change this.
What is the distribution (who pays whom)?
Beer demand responds to excise taxes built into the shelf price but barely to sales taxes added at the register. Economists call this property of a tax this.
What is (tax) salience?
Because an RDD compares only people near the threshold, its estimate is this kind of treatment effect.
What is a local average treatment effect (LATE)?
Expanding Head Start means hiring 100 teachers at $40,000 each. This $4 million is a cost because in a competitive labor market the wage equals this.
What is the marginal product of labor (or opportunity cost)
This is a method for comparing and ranking various policy options based on the returns generated by the tax revenue spent on the policy.