Government Inefficiencies: Problems of Direct Democracy

Overview
1. Individuals express their desirability for a private good based on the price that they are willing to pay for its quantity.
2. There is no equivalent mechanism for public goods.
Majority voting rule
1. in the choice between two alternatives, the alternative that receives the majority of votes wins.
2. Individual’s voter calculus is marginal (total) costs of voting for some good versus marginal (total) benefits derived from getting it.
3. Diminishing marginal utility suggests that voter satisfaction with any public good diminishes as it increases in quantity (e.g., park).
4. More spent on public goods implies less left to consume on private goods.
5. Thus, the marginal benefits from public goods are diminishing, and the marginal costs are increasing. The net marginal benefit – the marginal benefit minus the marginal cost – while positive for low values of government expenditures, is negative for high values of government expenditures.