THE MYTH OF SOCIAL COST.pdf - Institute of Economic Affairs

EPILOGUE
controversy both in the UK and the USA about the (alleged)
external costs of the Concorde in noise and atmospheric
pollution.
6. The motives of government: economic eunuchs?
Another implicit assumption of the Pigovian analysis is that
the political actors in government who devise market-correcting
measures are 'economic eunuchs' who act solely to maximise
social efficiency without regard to their own utility, power,
prestige, income or vote appeal. This is another highly unrealistic
assumption. Although the Roskill Commission's costbenefit
study 1 had suggested that Cublington was the leastcost
site for the Third London Airport, the lobbying pressure
from groups in the area led the government to drop this
recommendation in favour of the Foulness site, where the antiairport
lobbying had been weaker and less well-organised.
A more useful hypothesis in the explanation of government
behaviour in real life than the Pigovian 'eunuch' assumption
is that the anticipated effect on voter behaviour is an important
(if not dominant) element in the choice calculus of governments.
If government behaviour is determined by vote considerations,,
the political mechanism will lead to the selection
of 'ideal' market-correcting government interventions only in
the case where all political decisions require the unanimous
consent of the electorate. If the choice by government (or
decisions in a referendum on a single issue) is conducted under
a simple, majority voting system, the process of political choice
. may lead to the selection of government policies that fail to
maximise social welfare. 2
7. The motives of intervention agencies
The weakness of the Pigovian 'eunuch' assumption about
political behaviour is reinforced by the'fact that the bureaucrats
who manage intervention agencies to 'correct' market externalities
have their own goals, independent of and separate from
those of their political masters and the electorate. If, as Professor
W. A. Niskanen has argued, 3 power, prestige and income tend
to be related to the size of the agency, bureaucrats have an
1 Commission on the Third London Airport, Papers and Proceedings, Vol. VII,
1970, and the Commission's Report, HMSO, London, 1971.
2 These points are further developed by J. M. Buchanan in 'The Coase Theorem
and the Theory ofthe State', Natural Resources Journal, 1973, pp. 579-94.
3 Bureaucracy—Servant or Master?, Hobart Paperback 5, IEA, 1973.
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