Efficiency and market failures

Public planning features four social functions. Brooks affirms that the first function is the provision of data for decision-making. Even though many different agencies collect and provide data for public authorities, planners can especially influence decisions by working on data related to land matters. The second function is the promotion of collective interests regarding public goods. Collective interests and public goods present both different definitions so that a planner must be able to work with a comprehensive scope of terms. The third function of public planning is to fix negative effects originated by market forces. Although this planning approach is considered oftentimes restrictedly reactive, planners have to be aware of externalities and spillover effects generated by voluntary exchange of goods and services. The last function that planners should pay attention to is the desirable equal distribution of basic public goods and services. Planners must learn how to balance this normative statement with a myriad of divergent interests intrinsic of public decision-making processes.

Market failure is related to the ripple effects of control and lack of regulations within an economic system. Klosterman explains that Pareto efficiency takes place when market forces distribute available resources equally. However, this even distribution only takes place in perfect competitive markets. Since markets do not operate with complete information and exchange of same products and services by a large number of buyers and sellers, the government is expected to intervene to combat the centralization of economic power and to provide reliable data for consumers make rational choices. Government intervention is also justified by spillover effects like externalities such as pollution and congestion, prisoner’s dilemma that is when an individual pursuit his/her interests and these decisions do not lead to optimal outcomes for society - and vice verse – requiring thus the imposition of compulsory actions like building codes and tax collection. Market forces also tend to exacerbate discrepancies, and so the government tends to resort to income transfer programs, for instance, to address inequity issues.

Public good is a leitmotif of public planning. Brook defines public good as a good or service that everyone contributes to their provision but not necessarily benefit from it at all times. As a result, tax payers are oftentimes reluctant to contribute since they are not be able to enjoy it. Klosterman in turn defines public goods as “nonrivalrous” meaning that the consumption of a public good by an individual cannot reduce the availability of it for the consumption of another individual and “nonexcludibility” signifying that whenever someone is consuming a public good no one else could be prevented from doing so simultaneously. In the context of growing privatization of public goods, Brooks mentions that planners have had increased difficulty to identify what is still subjected to collective decisions and what is under market forces.

Planning plays an important role in addressing inefficiencies. As Stone highlighted market failure is caused by one or few companies triggering market forces like monopolies and monopsonies, dysfunctional information, and individual decision affecting collective welfare. Planning addresses these inefficiencies by considering collective action while tackling manipulation of preferences, unequal distribution of income and wealth, loyalty, provision of inaccurate and incomplete information, and equalizing societal and individual welfare. Klosterman pinpoints other public planning social functions. Planners should promote collective interests of communities considering external effects of individuals and groups, improve information for public and private decision-making, and take into account the distributional effects of public and private actions. In this context, Klosterman recalls that the role of planners is to “represent broadly defined interests usually neglected during private competition and advocate for society’s neediest members who are systematically excluded from the group bargaining process”. Stone finalizes pointing out the paradox of planning. The more efficiency planners aim for, the more inequality they tend to provoke. To keep agencies efficient, individuals need more motivation, but this might lead to less resource allocated to other groups. To promote equality, the government should intervene in individual choices resulting in less innovation and increasing administrative costs, which in turn forces the public administration to increase taxes reducing efficiency.

Stone, D. "Policy Paradox". Glenview, 1997
Brooks, M. "Rationales for Public Planning". Planners Press, 2002
Klosterman, R. "Arguments for and against planning". Cambridge, 1996