1 8 Public Policy Tension in Public Policy Normative Statement What the government does or doesn t do about public problems When the government replaces individual choices with collective choice Constitutional justification Individual liberty vs collective choice Thomas Hobbes says life in anarchy is solitary poor nasty brutish and short How do we decide the appropriate level of government involvement Ex NYC soda law Expresses a value judgment about whether something is desirable Subjective o o Uses words like should o Not falsifiable Ex people should not pay high taxes Empirical Statement Expresses a fact about the state of the world o Objective a statement of fact o Often posed as if then o Hypotheses falsifiable o Some are not true Logical Argument Difference in Opinion Empirically based o What does science say o We can usually settle our differences and see both sides Value based o Harder to reach common ground Types of Ethical Systems Deontological values o Moral imperatives o o Duties o Teleological values Things that must be done regardless of the consequences Ex tell the truth stand during National Anthem non violence o Only do something if consequence is desirable from the action o Actions are seen as instruments to achieve some goal Outcome based Preferences about policy are usually articulated as normative statements A logical argument connects normative and empirical statements to form an opinion on policy Ex brushing teeth driving to work paper or plastic o Utilitarianism o Value based Disagreements Deontological values o Differences are hard to overcome o o Evidence statements make little different Ex abortion Policy opinion based on deontological values and their opinion is so strong that empirical statements don t matter and there s no room for compromise o Values Individual liberty Individuals should be able to make choices for themselves Communitarianism Respect for all life human and non human Civic duty patriotism Teleological values o o o Values Easier to compromise People are more open to changing their views based on evidence 1 consideration Effectiveness Efficiency Costs are less than the benefits Equity Sustainability Feasibility technical and political 1 10 Efficiency Scarcity implies the need to ration goods and services There are many ways to do this o o Goods are efficiently providing to the extent that they provide the maximum net benefits to society Net benefits benefits cost Benefits to consumers Costs to producers There is no way given the current technology that the good can be produced at less cost and still provide the same amount of benefits to society Market economies allocate goods through the price mechanism free markets efficiently provide goods and services Assertion 1 Competition lowers costs of production and therefore lowers prices for consumers Ex market for apples Caveat certain conditions must be met o o o o Planned Economies Isn t there a lot of waste in market economies Planned economy a committee decides how goods and services will be allocated o o What information does the committee have access to Generally not as efficient as market economies Ex starting a restaurant You want to serve salad Suppose you were on the Restaurant Committee in a planned economy What would you have to plan Lettuce tomatoes cheese etc Suppose you are in a market economy and want to start a restaurant What would you have to plan That goods are allocated according to need or some other criteria o Not according to price Does everyone who needs a salad have a salad o No Assertion 2 markets are often inequitable o o Caveat talking about equity in outcomes not in terms of process Teleological Instances when free markets produce an inefficient allocation of resources i e we could produce the good or service more cheaply or that provide more benefits o o Occurs when market fails to be efficient o o o Equity Efficiency a big pie Equity distribution of pie Market Failure Examples o Monopolies Externalities o Information asymmetries o Collective Action Problems o o No competition Consequences o Charge a higher price Ex MLB NFL Antitrust laws Oligopolies o o Natural Monopoly Markets are good at efficiency but bad at equity 1 13 Monopoly Exists when a single business provides a good for which there are no close substances Same as monopoly except a few businesses provide the good o A single business can supply a good or service to the entire market at a smaller cost than could two or more businesses o Ex local electricity Regulations Externalities The uncompensated impact of one person s actions on the well being of a bystander Two types o Negative externality external cost one person s actions impose costs on a bystander My actions hurt someone else Not only inequitable but inefficient From a social point of view I don t consider other people s costs in my behavior Too much pollution o Positive externality external benefit one person s actions impose benefits on a bystander My actions help my neighbors Inefficient because I don t consider all the benefits I give to others when I cut the grass Too little lawn care is produced Information Asymmetry One person in a market transaction has more information than another Not a problem for certain items e g food Incomplete information for consumers to make good decisions on their own o Not complex items we can understand their purchase o We consume them frequently can adjust behavior o No big costs if we get it wrong We can make really bad decisions Problems College loans o Health insurance o o Home purchases o Car purchase repair 1 15 Collective Action Problems Doing what is in your own self interest is not in the interest of society o o o Cooperation problems If everyone cooperated we would be better off but people have an incentive to be uncooperative Public goods non excludable and non rival in consumption Ex National Defense Joint Consumption Not Joint Excludable Non Excludable Toll goods club memberships Public goods National Defense Private goods apples Markets allocate these well Common pool resources fishery collective action dilemma Government Failure When public policy causes a more inefficient allocation of goods and services than would occur without public policy Public policy isn t a magical solution it can sometimes make the government worse Why Does the Government Fail Incentives of elected leaders o Median Voter Theorem Close to the middle better chances of winning Policies in the middle may not be the
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