The Study On Local Government Behavior Externalities

Economists usually identify externalities in market process and call for governments to internalize the externalities exactly, but they hardly recognize externalities from governmental behaviors. Government behavior externality is the result of a political process. It is shift of costs or benefits as the results of establishment or change of transaction rules and property right's structures. Compared with market externality, government behavior externality is hardly anticipated and has a wider effect. As a general view, government behavior externality may affect allocation, stabilization, distribution, or growth.The article studied externalities of local governments' policy behaviors. A local government has special object functions and behavior restrictions. Local governments usually prefer protecting interests of influential groups in their jurisdictions but neglect voice of uninfluential groups and the damages to people out of their jurisdictions when they make and implement some policies. The preference of benefit distribution in local governments reduces the efficiency of intervening markets and makes the result of policies far from social optimality. According to this view, I think, local governments will affect not only people in their jurisdictions but also people out of their jurisdictions and the next generations when they make and implement policies. Therefore, local government behavior externality has special meanings and forms. It includes three kinds of externalities: externalities inflicted on people in the jurisdiction, interjurisdictional and intergenerational externalities. On the basis of public choice theory, the article has an analysis on the externalities in detail and brings forward reform thoughts and policy advices.