Project Abstract This award supports a conference, New Directions in Theoretical Public Finance, held at the University of Alabama in Spring, 1998. The aim of the conference is to bring together leading researchers in emerging areas of theoretical public economics to address via research presentations and discussions the new problems in public economics identified below. Many of the new paradigms and insights in public economics are the result of applications of modern game theory (e.g., evolutionary games) and general equilibrium methods to problems in public economics. This conference furthers the trend toward the application of modern methods to public economics by bringing together more experienced researchers in public economics with younger game theorist and mathematical economists interested in emerging problems in public economics. Competitive markets have proved to be effective institutions for allocating scarce resources in complex societies. Globally, market-based economies have flourished, while economies based on other forms of economic organization have not. In an economy based on free markets and private property, what role should government play in economic activity? The traditional view holds that government has two main functions: (i) to rectify market failures and ensure that markets are well-functioning (via, for example, regulation and maintaining a system of courts and laws protecting private property and ensuring enforcement of contracts); and (ii) to provide public goods, such as national defense, education, roads (via taxation and expenditure). That branch of economics which focuses on government and its role in the economy activity is called public economics. With the emergence of a global economy, the traditional roles played by national governments in economic activity (i.e., preventing and tending to market failures and providing public goods) have become more problematic, and the policy issues related to these traditional governmental activities have become more subtle and complex. Important global environmental issues of public economics have recently become prominent (e.g., Montreal, Rio de Janeiro, and later this year Kyoto) and some of those issues, often highly controversial, already are (and must be) dealt with at the global level. Simultaneously with the movement toward a global economy, there has been in the US a gradual realization that big government brings with it many problems which may interfere with the efficient functioning of markets as well as with the development and implementation of effective government policies. In the US Economy the increasing demand for government programs and services brought by an expanding and aging population together with the already high level of government indebtedness have led economist to begin rethinking how traditional governmental activities can best be carried out - and more importantly, to question whether or not some traditionally governmental activities should be left to the market. To what extent can the provision of public goods be decentralized via market-like institutions? Can the financing, design and implementation of programs to support health, education, welfare, and the environment be efficiently delegated to smaller jurisdictions such as state and local governments? In what areas and under what circumstances do national governments have a comparative advantage in implementing such programs? What impact will the movement toward decentralization and small government have upon a market economy. How can one design an efficient, budget-balancing fiscal system that safeguards legitimate public interests? What impact would such a fiscal system have on overall economic activity? These are some of the pressing issues in public economics. New theoretical paradigms which will provide a deeper understanding of the interactions of governments and economies have begun to emerge in public economics. Ultimately these paradigms will lead to new scientific approaches to complex policy questions in public economics, some of which were touched on above.
