Inefficient Redistribution by Daron Acemoglu and James

¶ … Inefficient Redistribution" by Daron Acemoglu and James A. Robinson, the authors describe their theory about how inefficient redistribution of government funds may occur. The authors assert that very often policy cycles emerge that make inefficiency "a tool to sustain political power in situations where; (1) the political influence of a group depends on its size, and (2) political institutions cannot credibly commit to future policy."

Redistributive policies can be divided into two types: Inefficient Targeting, which promotes entrance into low productivity sectors; and Inefficient Conditioning which promotes production to a point where it is no longer efficient. Acemoglu and Robinson claim that politicians and policymakers exploit people's lack of economic expertise to target and condition them toward inefficient redistribution.

Acemoglu and Robinson have developed a theory to explain the reasoning of inefficient income distribution policies in a variety of realms. There are obvious, direct effects to individual incomes in the system being redistributed by the government in the course of collecting and spending the national product: taxes are not collected from and government services distributed to income-receivers in equal or even comparable proportions. These disproportionate shares mean that some units are paying more and others less than they receive from government activity. A distribution of income which includes such disproportions must differ from the distribution which existed 'before' the government entered the system.

Fundamental organizational problems recur over time, in most agencies, and at a variety of governmental and administrative levels. Because the problems have been frequently confronted before, alternative responses and their consequences are often known. In some cases, however, the administrator will learn that no solution has been found, that the best available alternative leads to other problems, or that two alternatives are so balanced that choice is difficult. These possibilities, of course, help to explain why problems such as in efficient redistribution recur; if lasting solutions had been found, the problems would cease to be problems.

As Stone explains in chapter 10, "Decision processes, by definition, cannot affect the past. We know that the cycle of decisions and actions is partly a process of informed predictions; as the future gets more distant our predictions are less well informed and our decisions and actions are less reliable. In addition, we are not only more confident in the short-term, we are more subject to pressure to serve short-term interests"

Accordingly, cost-benefit analysis has come to play a large role in regulatory programs. This is largely attributable to the increased influence of economists in the government and recent administrations' commitment to reducing regulatory burdens on industry. Also, there is an appeal to the basic proposition that a proposed government regulation should demonstrably result in greater benefits than costs.