Public Sector Economics - Main Topics of Study

PART A: Market Failure

Economic Rationales for the State

  • Competitive equilibrium
  • Efficiency
  • Pareto principle
  • Interpretations
  • Further rationales

Equity and Efficiency

  • Equality and efficiency
  • Social choice
  • Social welfare functions
  • Consequentialism
  • Marginal cost of public funds

Public Goods

  • What are public goods?
  • Optimal provision
  • Market failure
  • Government intervention
  • Government provision of public goods


  • Externalities and market failure
  • Solutions to the externality problem
  • Commons and congestion

Asymmetric Information

  • The value of insurance
  • Principal and agent
  • Agency and government

Cost Benefit Analysis

  • Potential Pareto improvements
  • Opportunity costs and CBA fundamentals
  • Risk of estimating benefits
  • Cost-benefit analysis in practice
  • Cost-effectiveness analysis

PART B: Public Choice

Public Choice

  • Democratic process
  • Public choice mechanisms
  • Inefficiency with majority rule

Government Failure

  • Agency problems
  • Monopoly bureaucracy
  • Rent seeking
  • Comparing institutions
  • The political marketplace

PART C: Taxation


  • Tax systems
  • Taxes in countries
  • Current issues
  • Budgetary process

Tax Incidence and Efficiency

  • Incidence and partial equilibrium
  • General equilibrium incidence
  • The costs of taxation
  • Optimal taxation

Intertemporal Issues

  • Intertemporal choice and taxes
  • Debt and government budget constraint
  • Long-term consequences of tax policy

Taxes on Labour

  • Modelling labour supply
  • Income tax and inefficiency
  • Transfer payments and labour supply

PART D: The Welfare State

Income Inequality

  • Measuring inequality
  • Practical issues
  • International comparisons and recent trends
  • Explaining the trends
  • Fundamental causes


  • Defining poverty
  • Measuring poverty
  • Recent trends in poverty
  • Changing nature of poverty

Social Insurance and Welfare State

  • Social insurance
  • Market failure and social insurance
  • Welfare state and social insurance in practice
  • Crisis in the welfare state

Social Policy

  • Policies to combat poverty
  • Welfare state in the UK
  • Welfare reform
  • Current welfare system
  • Citizenship and the welfare state

Pensions and Ageing

  • Pensions
  • Market failure and equity
  • Demographic time bomb
  • Pensioner poverty
  • Changing face of society
  • Care and the elderly


  • Economics of healthcare
  • Market failure and healthcare
  • Healthcare systems and their weakness
  • Health expenditure escalation
  • Quasi markets and the reform of healthcare systems

Education and Training

  • Optimal investment
  • Market failure
  • Reform of education
  • Student finance

PART E: Regulation and the Boundaries of the State

Privatisation and Social Ownership

  • Public or private ownership
  • Ownership
  • Incentives and efficiency
  • Privatisation process
  • Impact of privatisation

Regulation and Competition Policy

  • Theory of regulation
  • Regulation and privatisation
  • Regulatory bodies
  • Regulation of privatised industries in practice

The Environment

  • Equity and environment
  • Market-based instruments and environmental policy
  • Roads and the environment
  • Transboundary pollution and the global commons
  • Global warming

Federal Issues and the European Union

  • Layers of government
  • The European Union
  • The assignment problem

Recommended Reading

Reading List

Main Text:
Sara Connolly and Alistair Munro, Economics of the Public Sector (Pearson Education, 1999, ISBN 013096641X