PLCY 210

Efficiency (definition and example)

-the achievement of program goals or benefits in relationship to the costs ex. balance between mitigation and adaptation in climate change

General Justifications for Government Intervention in Economy

-there are certain goods and services we want but that private businesses do not provide -to offset externalities -to enforce some societal notion of fairness in the distribution of scarce resources

Basic Features of Markets

Conjunction of utility-maximizing consumers with profit-maximizing firms ◦Utility- criteria by which we judge efficiency of market. Often expressed in money, but it covers much more than just money. Mutually beneficial, voluntary transactions. Works through the concepts of supply and demand.

Absolute vs. Relative Measures

In general, relative figures are more meaningful. Absolute measures don't take into account the whole picture

Normative Reasons for Classifying Something as a Public Good (and ways to do so)

The determination of whether a good is public sometimes depends on the value we place on that good. In other words, sometimes we believe that while we could exclude people from consuming a particular good, or that one person's consumption of that good shouldn't diminish other people's ability to consume it as well, so it becomes "public" from a normative point of view.

Basic Idea of Fragmented power and its Policy Result

oPolicy change is slow and incremental oProduction of policy requires compromise

Polling Error

sqrt(p(1-p)/n)

Randomized Experiments (attributes, advantages, and disadvantages)

• Key attributes of experiments: o Random selection into treatment and control groups o Ability to manipulate variables of interest o Consistency in application o Repeatable • But, there are some issues when it comes to experiments in policy research: o Ethical issues o Practical Issues o Repeatability Randomization and control allows us to make causal claims.

Current Congressional Makeup

• Most work is done in specialized committees with overlapping jurisdiction. • Power has shifted from committee chairs to overall leadership positions (e.g., Speaker of the House) • Amendment process depends on rules • Earmarks (Pork) • Filibuster- senators have right to unlimited debate. • Cloture- a vote to close debate that requires 60 votes. Meant to give minority party some say. • Many think the increase in the use of the filibuster is making the Senate nearly dysfunctional.

Separation of Powers

•3 primary functions of government o make laws o interpret laws o execute laws

Concurrent powers

•Concurrent powers: enjoyed simultaneously by national and state government

Divided Government and its Outcomes

•Major threat-separation of powers leads to impasse o 3 potential outcomes: Accomodation/compromise Constitutional breakdown Crisis in governability-harassment and unilateral action

Stakeholders ("three questions")

•Who is affected by the problem? •How will they respond to a policy change? •What are the political consequences?

Rationality

•consumers will make decisions that maximize their utility; firms will make decisions that maximize their profits.

Monopolies and Efficiency

This occurs when the producers of such goods cannot cheaply exclude people from consuming their goods.

Dual-Systems Theory

2 mechanisms by which we make decisions: intuitive, automatic, experience based reflective, controlled, deliberative, analytical

Correlation and Causation

Correlation: Basic measure of the degree to which two variables are associated. Only good at showing linear relationships. Useful and widely used when we have continuous variables or ordered discrete variables Two main ways to look for correlation: visually and with calculations (Pearson Product-Moment Coefficient) Most important thing to understand- a finding of a correlation between two variables in no way indicates that one causes the other, and you would not be able to tell causation by looking at a graph

Ideological Types

For economic and social: populist For economic not social: liberal For Social not economic: conservative not economic not social: libertarian

Elasticity

•This is a measure of the degree to which supply or demand will change in response to a change in price (really this is called "price elasticity"). •We can do this for both demand and supply. We calculate the percentage change in demand associated with a 1% increase in price. •Price elasticity of demand = % change in demand/%change in price •A good is elastic if its elasticity measure is greater than or equal to 1. It is inelastic if it is less than one. •Example: If the price of gas goes from $2.00 to $3.00, how much less (if any) will consumers buy? •Elastic= flat line, inelastic= vertical line *inelastic goods will be less affected by taxes

Indicators and Indices

•Ways we measure things that are not directly observable. •These are never perfect, but still useful. •Can sometimes be improved through an index- a combination of several indicators, usually weighted to reflect their perceived importance. •Example of indicator: Poverty •Example of index: Gini Coefficient •Book examples: GDP and Life Expectancy across countries

Paternalism

•When is it justified for a government to restrict individuals' freedom of choice when that choice harms only themselves? •Most paternalistic policies arise out of perceived irrationality of people. We are helping them make the "right" decision. •But, there are usually other ways to justify them.

Kaldor-Hicks Efficiency

•if those that are made better off by an exchange could theoretically compensate those made worse off, it is a Kaldor-Hicks improvement. Efficiency is reached when no such improvements can be made. (This is sometimes called a Potential Pareto Improvement). •In other words, net social benefits exceed net social costs

Procedure vs. Outcome in Equity (Rawls)

•people making political decisions imagine that they know nothing about the particular talents, abilities, tastes, social class, and positions they will have within a social order. When such parties are selecting the principles for distribution of rights, positions, and resources in the society in which they will live, this "veil of ignorance" prevents them from knowing who will receive a given distribution of rights, positions, and resources in that society

Checks and Balances

•related to but not identical to separation of powers •idea is that each branch can police the others •most come directly from constitution; some, however, do not

Opportunity Cost

•the cost of forgoing doing or buying something else.

Prospect Theory

Idea that people in decision making situations with known probabilities of outcomes make irrational decisions people value losses more than gains

Types of Policies (Alternatives)

Regulation •most direct form •government simply requires people or firms to behave in a specific way and attaches some kind of sanction to noncompliance •ex. criminal laws •major problem: monitoring and reinforcing Deregulation •normally used to correct government failure •result sin an increase of competitions and inefficiencies •wave of deregulations in 70s and 80s made these more expensive Taxes •taxes raise the prices of goods and services •two purposes: •1. change behavior •2. raise revenue •forceable contribution (how we overcome the free-rider problem) Subsidies and Grants -government expenditures to encourage specific behavior -grants: are unconditional -subsidies: are conditional -can be inefficient -are often used between levels of governments

Selection Effects

Selection Effect- occurs when the people being "treated" are significantly different than those who are not. •It is difficult to claim that these other difference are not the cause of any effect observed. •Any nonrandom assignment to treatment is subject to a possible selection effect, especially when participation is voluntary. •The solution, then, is to randomly assign!

Bounded Rationality

clear that humans are differentially rational as a result of inherent abilities and environmental conditions

Judicial Review

is a process under which executive and (in some countries) legislative actions are subject to review by the judiciary. The power of courts to assess whether a law is in compliance with the constitution.

Agents of Socialization

primary and secondary..primary sources tend to be people from a similar background media starts as a primary agent and shifts to a secondary one

Utility

well-being. This is a theoretical concept.

Confidence Interval

xbar+- (SE*1.96) for a 95% CI If confidence intervals for two statistics overlap, it is impossible to determine which is greater/smaller.

Heuristics

• A heuristic technique, often called simply a heuristic, is any approach to problem solving, learning, or discovery that employs a practical method not guaranteed to be optimal or perfect, but sufficient for the immediate goals.

Advantages and Disadvantages of using models

• Advantages o Common language o Improved accountability o Finding less obvious aspects o Avoiding bias and other errors • Disadvantages o Loss of broader vision o Loss of creative thinking o Too much structure o Understanding models o cost

Basic Structures and Powers of Branches

• Constitutional Republic with democratic leanings • At federal level, all democratic institutions are representative, so the key is how we vote for them and whether our vote matters. • House has single-member districts; Senators elected by whole state; President elected by Electoral College. • Federal judges are appointed by President (confirmed by Senate) for life. Can only force them to leave through impeachment. • Some states have forms of direct democracy (e.g., referenda), but the federal government does not.

Sources of Bias in Evaluations

• Dropout Effect (Survivorship Bias)- lots of times some of the people who receive a treatment leave the program for some reason or another. When there are systematic reasons (the dropouts share some trait, like income), this will bias the results. • Evaluator Bias- when the people doing the evaluation have a stake in the outcome, they are more likely to find what they want. • Participant Bias- when people in a study know they are in the control group, they will often dropout or find another way to receive the treatment. • Solution--- double-blind studies, where neither the participant nor the evaluator know who received the treatment. Almost impossible to do in policy research!

How Legislators Make Decisions

• Mayhew: goal of legislators is reelection, so they act to maximize the chances of being reelected. • Blame Avoidance vs. Credit Claiming: avoiding blame is more important for reelection than claiming credit (loss aversion). • Use of "facts": humans' ability to interpret data is clouded by ideological bias. • Logrolling

Full Authority and Types of Policies

• Power to entrench • Racing constitutional clock o Short bursts of activity o Focus on structural longevity o Symbolic policies o Expand power in branches less likely to switch

Importance of Context

• a good decision in one context may be a bad decision in the context of another o DDT • Specific Issues to think about o Time o Place o Number of stakeholders o Concentration of costs and benefits o elections

Filibuster

•A filibuster is a political procedure where one or more members of parliament or congress debate over a proposed piece of legislation so as to delay or entirely prevent a decision being made on the proposal.

Deadweight Loss

•A loss of economic efficiency due to exogenous factor •Causes: monopoly pricing, taxes and subsidies, externalities, price floors or ceilings •Occurs both in situations of market and government failures.

Applied vs. Academic Research

•Academic research is primarily driven by theory construction and testing. •Applied research is primarily driven by existing social problems and how best to solve them. Most "policy research" is applied.

Adverse Selection

•Adverse Selection- people rationally choose to use their own private information to sort themselves into or out of a market transaction. •Example: Orthodontics Insurance

Externalities

•An externality is a consequence of economic activity that falls on a party that did not choose to take place in that activity. Or, it is a cost or a benefit that accrues to some third party.

Transaction Costs

•Any voluntary exchange requires effort- gathering information, bargaining, writing contracts, monitoring compliance, etc. •We call these things "transaction costs". •The existence of transaction costs means that some exchanges that would be Pareto efficient never take place, thereby resulting in overall inefficiencies. •One role of public policy is to lower transaction costs in order to facilitate these exchanges.

Equity (definition and types)

•Basic definition- fairness (not "uniformity") •Horizontal: degree to which persons similarly situated are treated equally. •Vertical: degree to which the rich pay more than the poor (or the poor receive more benefits than the rich). Ex: progressive income tax •Intergenerational: fairness in terms of how policies affect different generations.

Property Rights

•Definition: a legal right to exercise some level of control over resources. •The vesting of property rights is essential to the productive use of resources. Essentially, they provide an incentive for people to use their resources efficiently. •Property rights are almost never absolute. Why? -As soon as they infringe on someone else's rights they become invalid -Usually not as simple as this person owns this

Empiricism, Objectivity, and Control

•Empiricism- evidence must be observable, either directly or indirectly, through some tangible manifestation. -Key to scientific empiricism is that it must be measurable Objectivity- "agreement on the results of a given observation." (Singleton, p. 36) -Impossible to achieve total objectivity •Control- ability to limit sources of bias and error -This is often where policy research gets into trouble

Evaluation vs. Policy Research

•Evaluation Research is a special kind of applied research, where we are predominantly concerned with how well policies "work". •A key difference between evaluation research and other types is that it is largely client-driven. •Evaluation is concerned with one particular policy, not with alternative ways to achieve some goal. •We want to know the outcomes of a policy, given how it was implemented. •Important: implementation itself often has a profound impact on how successful a policy is. •The key is being able to isolate the effect of the policy.

Excludability

•Excludability- two ways for a resource to be non-excludable: impossibility; •Costly- this could be in terms of actual money or manpower

Initial Endowments of Resources

•Furthermore, markets can only allocate resources efficiently given some initial endowment of resources. If that endowment is somehow "unfair", all of its allocations will also be unfair.

Incomplete Information

•Incomplete Information- sometimes we don't know enough to make a truly rational decision, or one that we would make if we had perfect information. One particular problem in market transactions is information asymmetry. •Example: Used Cars

State and local powers

•Issue licenses •Regulate interstate •Conduct elections •Establish local governments •Ratify amendments to the constitution •Take measures for public health and safety •May exert powers the constitution doesn't delegate to national government

Central Goals of Government

•Life, liberty and the pursuit of happiness •Without property rights there is no incentive •Freedom to act so long as you aren't harming others

Efficiency-Equity Tradeoff

•Lots of times our conception of a "fair" distribution of resources would result in economic inefficiencies, and a perfectly efficient market exchange may results in some perceived unfairness. •Markets are only good at efficiency; in theory, they have nothing to do with fairness. •Furthermore, markets can only allocate resources efficiently given some initial endowment of resources. If that endowment is somehow "unfair", all of its allocations will also be unfair. •We typically get around this by clinging to the idea of procedural fairness- so long as the process is fair, the results are immaterial. •The bottom line is that we have to make trade-offs between efficiency and fairness all the time.

Moral Hazard

•Moral Hazard- when people respond to a change by acting more recklessly than they would otherwise. •Example: insurance causing riskier behavior

Net Present Value

•NPV=N/(1+r)t •N=nominal value of future cost or benefit •R=discount rate •T=number of periods in the future at which the cost will be incurred

Nash Equilibrium

•Nash equilibrium is a solution concept of a non-cooperative game involving two or more players in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his own strategy. If each player has chosen a strategy and no player can benefit by changing strategies while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitutes a Nash equilibrium.

Agency Capture

•Over time agencies become dominated by the industries/groups they regulate because of personnel exchange. •Theory works well with agencies with narrow and exclusive jurisdictions (FDA and pharmaceutical groups), not so well when several agencies have jurisdiction over same issue (Immigration).

Pareto Efficiency

•Pareto Optimality- when it is not possible to make one person better off without making another person worse off. •Pareto-Improving decision- an exchange that makes at least one person better off while making no one worse off. •Efficiency- when no Pareto-improving decisions can be made •Very rare in actual life, especially in public policy

Methods of Allocating Resources (Winners/Losers/Problems)

•Price: goods go to those who can pay the most -Winners: wealthy -Losers: poor •Queuing: first in line get priority -Winners: those who get there first -Losers: those who don't •Chance: lotteries, drawings, random selection -Winners: random people -Losers: the majority •Authority: Goods are allocated by experts and officials -Winners: officials' friends -Losers: most people

Principal-Agent Problems

•Principal-agent problems occur when •1) A "principal" hires an "agent" to perform some task but the agent has different interests than the principal; and the principal cannot easily monitor the agent's behavior. •Example: Immigration Enforcement

Specialization and Gains from Trade

•Productivity can be increased by specialization. •Specialization means workers, companies, even nations focus on a part of the whole, or on whatever they have a comparative advantage in producing. •Specialization results in workers and societies needing to obtain goods and services from other people, and hence requires a mechanism of trade. •Effects of using specialization and trade: oTotal production is higher oTotal consumption is higher

Problems Measuring Social Welfare

•Public policy tries to maximize social welfare, but we don't have a good way of measuring social welfare. •The main problem is that almost all policies have winners and losers. •How do we make tradeoffs between individuals or across populations? •How do we determine whether the tradeoffs result in some net social gain? •Should the "common good" trump individual rights?

Discount Rates

•Reflects uncertainty about future costs and benefits •Low discount rate means high regard for the future generations, would be we should forgo almost all current consumption •High discount rate means little or no regard for future generations

Free Rider Problem and How We Overcome It

•Regulate •Government provision of the good (taxing) •Privatize the resource •Rely on a "privileged group" •Provide selective incentives

Rivalry

•Rivalry- a resource is non-rival if there is a zero marginal cost of production. In other words, if the cost of providing the good to one additional person approaches zero. Like excludability, this is a continuum.

Productivity

•Several ways to increase productivity: •Use more inputs, but there are diminishing marginal returns •Increase human capital

Absolute and Comparative Advantage

•Some key concepts: -Absolute advantage- a person, firm, or nation is simply better at producing something than others. More productive. -Comparative advantage- having a lower opportunity cost of producing a good

GDP (what it measures; problems using it)

•The Gross Domestic Product measures the value of economic activity within a country. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time. •Conventional feeling about GDP is the more that it grows the better a country is doing •Problem is that people tale a nation's economic activity for citizen's well-being •If you look at US median income it tells a very different story than GDP does •There's no depletion charge built into GDP for things like natural resources bc its hard to put monetary value on things like climate change

How to fix government failures

•The government can recognize the problem and try to fix it. •We can get rid of the government and put a new one in that will fix it. •We can dramatically reduce the size of the government in the hopes of limiting such failures.

Productivity vs. Profit

•These are related, but distinct measures. •Productivity measures outputs and inputs; profit measures receipts and costs. •Price changes generally will not affect productivity; they do affect profits.

Collective Action Problems

•These occur when each individual is pursuing a rational strategy to maximize utility or profits, but the collective, or social, outcome is bad for everyone, including that individual. •Mostly arise when people try to shirk responsibility yet still share in group benefits. •How to resolve the problem: o Regulate o Government provision of the good (taxing) o Privatize the resource o Rely on a "privileged group" o Provide selective incentives

Government Failures

-Lack of incentives in public sector work -Information problems -Short-run emphasis of politicians -Administrative costs of bureaucracies -Moral Hazard

Assumptions of Market Theory (all of them!)

-People act out of self-interest, or perceived self-interest. -Preferences are known and stable. -People make decisions rationally- to maximize utility. -Perfect Information -Principle of nonsatiation- more is better -Declining marginal utility

Equity (definition and example)

-fairness or justice in the distribution of the policy's cost, benefits and the risks across population subgroups

Effectiveness (definition and example)

-likelihood of achieving policy goals ex. D.A.R.E is ineffective

Modern Roles of Government

-to provide security through a monopoly on violence...this includes both physical safety and property rights -to remedy economic inefficiencies in the private market -to enforce some societal notion of fairness

Ways to Manage Common Pool Resources

1)Complete government control 2)Vesting property rights in a limited number of individuals to provide them with the incentive to preserve the resource over the long term.

Public vs. Private Goods

1)Public Goods: market doesn't work because we can't stop people from using these goods. Example: National Security 2)Private Goods: market is the most efficient means of allocating private goods, but may require some regulation in terms of the broader social effect or societal notions of fairness.

Difference in claiming causation from experimental methods and statistical methods

Essentially, we mathematically estimate the effects of multiple independent variables on a dependent variable. We get estimates of the effect of each one plus an error term that basically captures everything we didn't test for. o There are lots of problems with claiming causation using statistics, but it is often the best way we have of estimating effects.

Political Socialization

Greenstein has pointed out that political socialization can be thought of either very narrowly- meaning civics classes in high school-or broadly-meaning all political learning. To us, a striking feature of political socialization studies is that they often involve learning at the preadult age. "who learns from whom under what circumstances with what effects"

Purposes of Taxes

Incentivize behavior Revenue generation Remedying market failures (externalities) overcoming collective action problems

Legitimacy of courts

Judicial legitimacy derives from the belief that judges are impartial and that their decisions are grounded in law, not ideology and politics.

Inductive Reasoning

oConclusion is uncertain even if the evidence is true oAnother way to think about it is that inductive reasoning goes from specific to general oInductive reasoning can vary in strength or probability that it is valid

Validity and Reliability

Validity- do the measures capture what we want them to? Often depends on context and purposes of the research. Example: divorce rate is measured by the number of divorces divided by the population. What are the problems here? Reliability- problems usually arise in data collection process. Ex: poorly constructed survey questions.

Threats to Common Pool Resources

When it is difficult to exclude people from consuming resources, yet each person's consumption diminishes the ability of someone else to consume it, the incentive is for people to consume as much as they can before the resource is used up. The result is that the resource is depleted.

Multivariate Analysis

o Basic time series can be improved with the inclusion of a separate, nonrandom control group. o We still use longitudinal data and look at changes over time. o BUT the addition of a group who is not subject to the treatment gives us a baseline to control for confounding factors because both groups would be subject to the same outside conditions. o Example: Lowering income taxes at state level

Deductive Reasoning

o Conclusion is certain if the evidence is true o Another way to think about it is that deductive reasoning goes from general to specific. o Deductive reasoning is either valid or invalid

Types of powers (Express, implied, inherent)

o Enumerated: Article 1, section 8 (17 in all) Specific list seen as limiting Supremacy clause in Article VI • If federal government has the authority to operate and it does chose to, any state/local law contradicting it is void o Implied: "necessary and proper clause" Adds power to the national government Vaguely defined o Inherent: dealing with other nations mostly

Time Series Analysis

o Longitudinal data allow us to use the same group as both treatment and control. o We can measure before and after some event, like the introduction of a policy. Example: ACA and the Uninsured o Problems: o causation can be difficult to determine because of the possibility of intervening events or some other change unrelated to the policy itself. o Sometimes policies take a while to kick in

Natural Experiments

o Sometimes, things happen that allows us to do perform experiments without actually setting them up in advance. o A natural experiment is when something occurs that allows us to take advantage of an essentially random selection process that occurs in nature. o Example: charter schools

Nonequivalent Control Groups

o We always need a control group. o When we cannot create one via randomization, we may try to pick one strategically in a way that minimizes the possibility of confounding factors. o Key is to make sure the groups are as similar as possible along your primary variables of interest to minimize selection effects. o Example: Flipped Classroom