Journal of Economic Perspectives: Vol. 12 No. 2 (Spring 1998)

Stiglitz, Joseph. 1998. "Distinguished Lecture on Economics in Government: The Private Uses of Public Interests: Incentives and Institutions." Journal of Economic Perspectives, 12(2): 3-22.

DOI: 10.1257/jep.12.2.3

[Joseph Stiglitz was a member of the Council of Economic Advisers from 1993-95, and chairman of the CEA from 1995 through February 1997.] Today, I want to share with you some of my thoughts about the possibilities and limitations of government. These thoughts are focused around a simple question: Why is it so difficult to implement even Pareto improvements? Working in Washington, I quickly saw that although a few potential changes were strictly Pareto improvements, there were many other changes that would hurt only a small, narrowly defined group (for example, increasing the efficiency of the legal system might hurt lawyers). But if everyone except a narrowly defined special interest group could be shown to benefit, surely the change should be made. In practice, however, "almost everyone" was rarely sufficient in government policy-making and often such near-Pareto improvements did not occur. My major theme will be to provide a set of explanations for why this might be so. I shall put forward four hypotheses in this lecture, each of which provides part of the explanation for the failure in at least one instance of a proposed Pareto improvement. These hypotheses, like much of the literature on government failures, focus on the role of incentives: how misaligned incentives can induce government officials to take actions that are not, in any sense, in the public interest.

Stiglitz, Joseph (World Bank)

A11: Role of Economics; Role of Economists
H11: Structure, Scope, and Performance of Government
D73: Bureaucracy; Administrative Processes in Public Organizations; Corruption