EC4408: State the First and Second Fundamental Theorems of Welfare: Public Finance Assignment, UoL,

Assignment Details:

Q1.

State the first and second fundamental theorems of welfare and discuss the usefulness of the Pareto efficiency criterion for policymakers when making decisions in relation to the allocation of resources in society.

Q2.

The pollution generated by many industries when producing goods and services is a classic example of a negative externality. Discuss a number of the responses and solutions that have been implemented by policymakers to deal with this issue to date and comment on the reasons why many governments are often reluctant or very slow to deal with issues related to the pollution created by the industry.

Q3.

Provide a detailed outline of the rate-of-return (cost-of-service) method for regulating network utility companies and discuss the key issues related to the estimation of the following three components of the rate-of-return model and how this affects the incentives for a regulated firm to invest:

a. Valuing the Regulatory Asset Base (RAB);

b. How to determine depreciation rates; and

c. How to determine the allowed rate of return on investment.

Q4.

Outline and discuss some of the major issues Irish policymakers face when conducting fiscal policy within the rules dictated by the preventative arm of the Stability & Growth Pact.

[Hint: Your answer should briefly describe the main aims of the Stability & Growth Pact and how it has evolved over time before focusing in particular on the issues related to estimating potential output and the impact this has on the measurement of output gaps and the structural balance, as well as the expenditure benchmark]

Q5.

Using your knowledge of sovereign debt dynamics, discuss the likely impact of the current Covid-19 pandemic crisis on the government finances and debt sustainability of Ireland and the wider Euro area. Your answer should contrast and discuss the key differences between the current response to the crisis by Euro area governments, the ECB and the EC with the response to the 2008-09 crisis by the same bodies.

Q6.

The Irish government is considering the construction of a new motorway link between Limerick and Cork. Using the example of this public project you are required to outline and discuss the key elements of a Cost Benefit Analysis (CBA) for the project. As part of your discussion you need to ensure that you include the following:

a. Examples of two potential direct costs and two potential direct benefits and an explanation of why you consider these effects to be direct and how they can be enumerated.

b. Examples of two potential indirect costs and two potential indirect benefits and an explanation of why you consider these effects to be indirect and whether they should be included in the CBA.

c. Example of an indirect effect that may be considered a pecuniary externality and an explanation of why your example should be considered as such.

d. Examples of two intangible effects and a discussion as to whether these should be included in your CBA.