Economics - General

Explaining government crowd-out with March Madness

While watching the men’s NCAA basketball tournament, I’ve noticed a large number of ads for the 2010 Census.  Is this a good investment of tax dollars?  What is the marginal increase in the number of Census responses for each ad?  How much does the government value one additional Census response?  How much should it value an additional response?

I have a lot of questions, but one thing a know for sure: this is an example of government crowd out.  Crowd out occurs when government spending reduces private consumption or investment.  In the case of the NCAA tournament, there are a fixed number of ad spots.  When the government decides to advertise with the Census spots, aggregate demand for NCAA ad time increases.  Increasing aggregate demand will increase the price of ad time during the tourneament.  When the price increases, some private firms will decide they do not want to advertise, even though they would have preferred to at the lower  price.  Mechanically, one can see because there a fixed number of ad spots, when the government advertises, this must take away the opportunity for a private firm to advertise.

CBS, the network televising “March Madness” profits from the additional demands. Other networks may also benefit if the Census advertises on their network.  Those hurt by the ads are the taxpayers who fund the ads.  It may be the case that taxpayers want other taxpayers to do a good job of filling out their Census form.  How much they are willing to pay for this will determine whether the Census ads are welfare improving or not (I’m leaning towards not).

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