Public Economics

Course code:
Period 1
Language of tuition:
Fac. der Aard- en Levenswetenschappen
prof. dr. H.L.F. de Groot
prof. dr. H.L.F. de Groot
dr. S. Poelhekke
prof. dr. H.L.F. de Groot
prof. dr. C.C. Koopmans
Teaching method(s):
Lecture, Seminar

Course objective

This course has two central goals. It elaborates on the fundamental
economic principles that were discussed in the first and second year
(Introduction to Economics I and II and Environmental and Transport
Economics). The focus
is on the microeconomic principles that can economically legitimize
governments to
intervene and that are needed to understand the behavior
of the government as an actor in the economic process. Ample attention
will be given to issues in the area of sustainable development,
infrastructure policies, the functioning of (regional) labor markets
and spatial planning. Furthermore, the course provides insights in the
way in which fundamental theoretical and empirical economic results can
be used in day to day policy making.

The attainment goals of this course are:
• You have a good understanding of situations in which markets can
yield economically optimal outcomes and those in which markets can fail.
• You know the core tasks of the government and you know under
which conditions there is a role for the government to correct market
failures. You are also aware of the reasons behind government failure.
• You know the policy instruments that the government has at their
disposal to influence the outcome of market processes and you are
familiar with the pros and cons of the various instruments.
• You are familiar with the concept of fiscal federalism and can
use it to determine what the optimal spatial level of policy making is.
• You know the key building blocks of (social) cost-benefit
analysis and you can provide a high-quality evaluation of existing cost-
benefit analyses using standards for good practice.
• You know the valuation techniques used by economists to perform a
cost-benefit analysis.
• You know the alternatives for cost-benefit analysis to evaluate
policies such as multi-criteria analysis and cost effectiveness analysis
and you are aware of the pros and cons of such alternative tools.

Course content

The free market does not always deliver socially optimal outcomes. In
such situations where markets fail, there is a potential role for
government intervention. At the same time, government intervention can
also have (sometimes unintended) side effects. In this course, the many
aspects of government intervention are discussed. Topics that are
central are: (i) the role for the government in the economic process,
(ii) externalities, (iii) public goods, (iv) labor markets and income
distribution (interpersonal and interregional), (v) optimal taxation,
(vi) fiscal federalism and subsidiarity and (vii) location choice of
firms and people. Much attention will be devoted to methods for policy
evaluation, with special emphasis on cost-benefit analysis.

Form of tuition

There will be two regular lectures (of two hours each) per week in which
the course material is discussed in an interactive way. Furthermore,
there is one tutorial per week (also two hours) in which assignments are
discussed and students give presentations.

Type of assessment

Written exam with open questions (60%) to be completed with a minimum
score of 5. Paper, presentation, and assignments (40%).

Course reading

Varian, Intermediate Microeconomics, Norton (8th edition), chapters 14,
33, 34 and 36

Tresch, Public Sector Economics, 2008, chapters 13, 15, 20, 21 and 22
(see also the website

Eijgenraam et al., Evaluation of Infrastructural Projects: Guide for
Cost-Benefit Analysis. Section I: Main Report (in Dutch: Evaluatie van
grote infrastructuurprojecten, deel I ("leidraad OEI")).

Information on additional literature (papers) will be announced at the
start of the course.

Recommended background knowledge

Inleiding Economie I (year 1), Inleiding Economie II (year 1) and
Environmental and Transport Economics (year 2)

Target audience

Third year bachelor students (following a minor in Economics or Earth
and Economics)

© Copyright VU University Amsterdam
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