1. STAGES OF THE POLICY PROCESS

2. Problem Identification
Policy Formation
Policy Analysis
Policy Choice
Policy Legitimation
Policy Implementation
Policy Evaluation
Policy Formulation, etc.

3. Policy Choices & Policy Analysis
“Policy analysis is the effort to think carefully about policy problems and potential solutions”
Ex ante analysis:
Ex post analysis:

4. Policy is like sausage:

5. Within democratic systems public policy emerges mainly from a complex mix of:
Electioneering and voting
Organizing and mobilizing groups
Lobbying
Assessing public opinion
The interacting of all of the above

6. Political economy approach
4 important principles:
Importance of opportunity costs
Multiple ways of solving a problem
The use of customer-oriented criteria
The use of market like incentives

7. Emphasizing the importance of opportunity costs in achieving public benefits and the principle that benefits must be considered relative to costs.

8. 2) Illustrating that there are a broad range of alternative ways of delivering public goods and services, other than hierarchical, government bureaucracies; for example, housing and education vouchers or the use of incentives and subsidies, rather than fines and sanctions

9. 3) Going beyond traditional performance based criteria and emphasizing the importance of customer-oriented criteria for assessing satisfaction with government services

10. 4) Demonstrating the fact that market-like incentives and price-like mechanisms are sometime superior to rules and coercive sanctions in achieving public objectives

11. What Should We Consider in Choosing a Policy Solution?

12. Bottom-up v. top-down
Market Incentives v. Government Regulations
Coercion v. Incentives
Bureaucratic Failures (Shirking, budget maximizing)
Market Failures (reduced competition, public goods)

13. Cost-Benefit Analysis
6 important stages in cost-benefit analysis

14. 1. Problem and Objective Identification: Goals and Values
2. Identification of Potential Solutions
3. Data Collection and Analysis

15. 4. Estimation of Costs and Benefits
Monetization
Human v. Monetary Costs and Benefits
Intangibles
Discounted Value (money now v. money later)
Risk Assessment

16. 5. Decision Criteria
Democratic: fair, politically acceptable
Benefits outweigh costs
Competitive
Scientific
Pareto Principle
Kaldor-Hicks

17. And finally, policy recommendation

18. Applying the cost-benefit analysis:
Is it appropriate to talk in terms of cost/benefit when dealing with all policies?
What about child abusepolicy? How do we handle the meaning or definition of child abuse and weigh in the rights of parents and maintain due process?

19. the most economic efficient method to deal with child abuse is probably not to do anything - but beyond that due process and being sensitive to others rights gets in the way of solving the problem of child abuse.

20. the most efficient way of dealing with criminals is not to give them a trial or hearing - but most of us would not want to live in a society that did not provide some type of trial for those accused of a crime.

21. Some problems are not easily applied to economic models, market incentives, or cost/benefit analysis.
Very few firms take on the problems of housing, education, and medically caring for the old, abating drug abuse, or dealing with crime.

22. Fairness is often a major goal/value when we are trying to solve a social problem and fairness can conflict with goals of efficiency or cost/benefit analysis.

23. Although “Cost/Benefit Analysis” sounds efficient and objective it is often applied very subjectively and strategically

24. The Politics of Cost-Benefit Analysis
The role of values
Agenda setting
Subjective perceptions
Competition for limited resources
Process vs. outcome

25. But is Politics that bad….
We often hear the message that politics is a terrible method for addressing major issues and problems.
Such a message promotes distrust of government and makes it easier for groups to dismantle our public sector, parts of which may be very beneficial to many of us, on the grounds of efficiency and the superiority of the market.

26. The question is who benefits from us believing this?
Democratic government is politics
How do we defend democratic government as a legitimate tool?
How do we make democratic government more efficient?

27. More political participation - it promotes the dissemination of information and creates more sophisticated citizens who can better differentiate if some policies are in their interest. It also promotes responsiveness of public officials and promotes trust all of which strengthens democracy.
Trust can lower transaction costs and make democratic decision making more efficient/effective.

28. Next Lecture
Policy Implementation and Evaluation