To be or not to be? A general economic theory for public law: examining the benefits and costs of state intervention

This chapter establishes a general economic theory for public law and regulation (domestic and European) by assessing the benefits and costs of public intervention. The State can remedy the shortcomings of private action (market failures, limited rationality, missing markets for public goods) by using its sovereign powers (which constitute a natural monopoly) to intervene centrally, unilaterally and uninterruptedly. This is its raison d’être. Those benefits are maximized within a liberal/democratic constitutional system. Nevertheless, the State’s privileges generate also serious costs. These arise from its vertical and monopolistic structure (which deprives public authorities from the necessary information and incentives), from the inherent failures of the electoral/democratic process in reaching efficient collective decisions (due to Arrow’s impossibility theorem, pressure groups and high political transaction costs) and, most importantly, from increased principal/agent problems in multiple levels (between citizens and elected officials, the Government and the Administration, etc.).