ABSTRACT
One of the most basic problems of welfare economics and one that has plagued that field of inquiry since its very beginning is that of finding out whether non-market organization leads to over- or to underinvestment in some activities. If the analysis presented in this chapter is correct, the extent of over- or underinvestment will depend principally on the level of political participation costs and on the relative bargaining power of bureaucrats and politicians. Since these magnitudes vary over government departments, one should not be surprised, once the politically desirable level of these variables had been found, to discover that in practice there is overinvestment in some activities and underinvestment in others.
