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1)    Political theory

a)     libertarian

i)        Natural rights- Nozick. nightwatchman

ii)       Empirical Hayek, friedman. market is impersonal so cannot be unjust.

b)    liberal

i)        utailitarian efficiency

ii)       Rawls justice primary

c)     socialist equality, freedom, fraternity. Welfare state= ransom

2)    Economic theory

a)     Efficiency a common aim. Methods:

i)        Regulation quantity restriction hygiene

ii)       Finance subsidies, taxes, NHS

iii)     Public production defence

iv)     Income transfers pensions

v)      Measurement of welfare basis:

(1)   full income money + non-money=potential consumption

(2)   non-money income not measurable and not correlated with money

(3)   time period hard to meaasure

(4)   size of household

vi)     Invisible hand provides reasons for intervention:

(1)   perf info. Nature, prices etc. When fails mkts can make solutions or state.

(2)   Future info. Insurance.

(a)    Demand

(i)      non-linear utility

(ii)    pooling risk

(iii)   credit risk of insurance company + monitoring

(b)   Supply

(i)      Get an actuarial premium.

(c)    problems with supply

(i)      individual risk must be independent

(ii)    outcome must not be certain

(iii)   probability must be estimatable. inflation problems with pensions. invest into inflation adjusted bonds

(iv)  adverse selection purchaser conceals information

(v)    moral hazard manipulates the probability (carelessness) or size of claim (third party payment)

(3)   Perf. comp. input, output, capital mkts. Price taking&equal power.

(4)   no public goods non-rvalness, non-excludability, non-rejectability (cannot chose to consume). Different MC for extra output and user.

(5)   no externalities. Coase no problem. Fails when property rights not enforceable, large negotiations. Pigovian taax might solve.

(6)   no increasing returns MC=MR pricing inefficient.

b)    Social justice=equality another aim Methods the same, reasons:

i)        Forced by the poor to rich, or chosen for altruistic motives.

ii)       Good and bad consumption.

iii)     cash transfers could otherwise provide all necessary intervention, unless public production is good.

iv)     Measurement:

(1)   poverty based again on full income

(a)    absolute

(b)   relative

(c)    marginal tax rates problem of means testing

(d)   problems with drawing a line, Sen Gini adjusted

(2)   inequality

(a)    equality of opportunity

(b)   which causes of money income differences is inequality (race sex etc). Natural ability (education) problems

(c)    Money overstates coz

(i)      different tastes for money

(ii)    different life cycles

(iii)   income is a random variable, so some difference in point time.

(iv)  children whether a rise in utility or fall in per capita income

(d)   Lorenz curve, Gini coefficient

(i)      curves crossing

(ii)    only money income, no life cycle

(iii)   data is not consistent over time/between countries

(iv)  Atkinson, Theil put more weight on low income inequality(=Rawls). No welfare interdependence(Sen).

c)     more aims:

i)        insurance

ii)       income smoothing

iii)     Participation in the society through involvement

iv)     ease of administration

3)    Cash benefits

a)     Sources

i)        Commodity taxes

ii)       Income taxes

iii)     National Insurance

iv)     Voluntary pension schemes

v)      In Kind transfers

vi)     Redistributive power depends on elasticities

b)    Forms of institutions

i)        social insurance based on contributions and some event (unemployment)

ii)       social assistance means testing, financed from taxation

iii)     universal benefit fullfillment of criteria having a kid.

c)     Outlays

i)        Unemployment/Sickness

unemployment benefit someone with full contr. record, up to a year. must seek work and work for at least 13 weeks.

sickness-paid dependent on your income, after 28 weeks turns to invalidity. first 3 days off. paid from NI.

why state?

people want insurance

compulsory because non-insurance imposes external costs. crime, lost output, badly looking poor.

why public non independent prob-keynes. no info problems. most problem with moral hazard. private companies cannot provide jobs. in practice no private schemes.

why is sick public? econonomies of scale in providing sick and eue together.

also keynesian built in stabiliser, marxist controversial.

poor like to receive goods and rich give them.


provision only to average citizen however extra can be purchased

incentives does it cause ue? pensions reduce savings, but not much evidence that replacement rate creates ue more of the duration of UE benefits.

horisontal equity is good. vertical not so much

ii)      Pensions

iii)    Non-contributory

d)     Reforms




supply side no fees

individuals dont decide consumption

finance of taxes avoiding insurance mkt

treatment free equity and prevention, no externalities

macro efficiency cheap, monopoly, too few resources

geographical allocation

micro efficiency allocation, questionable.

work effort of doctors (dynamic efficiency)


unimportance of income

social justice

distribution of health and healthcare controversial



consumption decision imposed


macro efficiency impossible to q. only 10% of money goes to q mortimore

micro efficiency of HE funds centrally decided, non-optimal allocation?

administrative slack DES



school uniforms

leave to work at 16 now subsidy

further equation regressive le grand. atkinson

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