PADM 5006 Final Exam Fall 2000

Use separate sheets of paper as needed to answer. Please be sure to put your name on your answer sheets and the number of the question you are answering. When done staple all your answer sheets and your exam together and hand them in.

Please explain your responses.

1. According to a recent article in the Modesto Bee (Stapley, 12/16/00) the city of Modesto pays about $82,000 a year to maintain, provide utilities, and insure a building on Morris Ave. built in 1923 for which it collects $7,700 in rent. City officials need to decide if they want to make any changes such as to renovate the building, tear it down and build a new one, or tear it down and make the area part of the park next to it.

Consider the following related hypothetical problem.

Side A says: If the building does not meet code the odds of an injury or accident are high. Life and health are infinitely valuable so the building must go. Besides the city collects less than $8,000 in rent each year and spends more than $80,000 dollars so the net loss to society is over $72,000 per year.

Side B says: Over 500 activities and events are held there each year. It’s true that rent of about $150 is charged for only about 5% of the activities and another 10% of the activities pay a reduced rate so the total collected is less than $8,000. However those are only “on-budget” benefits. The other 85% of the activities benefit the community too. Comparable space is scarce and would rent for $250 so the true social benefits are over $125,000 a year. Since these will occur every year forever they are infinitely valuable and far exceed the estimated $1.6 million it would cost to fix the building.

a) Comment on any problems you see to each side’s analysis thus far.

b) If you were to do a benefit cost analysis of renovation versus conversion to a park, what additional kinds of information would you want to help you in advising the city?

c) Would it matter if the activities that tend to take place in this building tend to benefit the very poor?

2. Which of the following would you classify as a public good or private good? Briefly, why?

Public pool

Public assistance

New Amphitheater for Tuolumne Park

National Defense

Headstart

Clean air

Holiday tree in Rockefeller Plaza

Suberbowl broadcast

Candy Canes

Highway

3. Recently Modesto was in the news for scoring poorly as a healthful place to live (Chrismer, Modesto Bee, 12/3/00) according to Self magazine study. This was in part because of consideration regarding ground water problems caused historically by local dry cleaning processes. Why might it be desirable for the government to be involved in this issue? (Hint: please relate this issue to the Coase Theorem.) How could public policy be used to reduce the level of pollution? What are some of the advantages and disadvantages of alternative approaches?

4. Suppose someone suggests: “The Social Security tax is efficient and fair because it is split equally between workers and employers.” Discuss this idea. Please include definitions of the key terms used in your arguments.

5. What’s the difference between the economic justifications for social insurance programs such as Medicare and Unemployment insurance versus social redistribution programs such as TANF and Food Stamps?