Answer to Question #129003 in Economics for Masechaba

Question

The principal‐agent problem creates bureaucratic failure which transmit into government failure. Explain the relationship between these three terms.

(5)
Q.2.4
Do you think the cardinal or additive welfare functions of social welfare maximisation is applicable in South Africa, that is: W = Ua + Ub + ......? Motivate your answer.
(5)
Q.2.5
Distinguish between an ultruist and a non‐ultruist given that: Ua = f[Ma, Ub(Mb).
(5)
Q.2.6
Given that: E εt2PQ b=
Required: Explain what this equation is telling us in relation to the excess burden of a tax.

Answer 1

1) The principal-agent problem can occur in government when officials have incentives to act in their own interests rather than as agents for the people, who are the principals.

Q.2.4

A cardinal social welfare function is a function that takes as input numeric representations of individual utilities, and returns as output a numeric representation of the collective welfare.

Additive utilitarian function describes the society which should aim to maximise the total happiness of the community, and social welfare is the unweighted sum of the utilities of all individuals.

These two functions can be applicable in South Africa.

Q.2.5

Being altruistic is unselfish. The opposite would be selfish. Someone concerned primarily with one's own interests, benefits, welfare, etc., regardless of others.

Q.2.6

The excess burden of taxation is the efficiency cost, or deadweight loss, associated with taxation.