iapa midterm 1

ARI

analysis ; evidence based recs; ideas on feasibility of implementing based on local context

comparison countries

factors to consider - pop density, urban v rural, natural condition, distance travelled. cannot isolate one policy effect

step 1 b&p

define the problem

step 2

gather evidnce

step 3

coinstruct alternatives

Built-in Solution (or Solution in Search of a Problem)

Defining a problem by stating that a specific policy action is missing (e.g., stating "too little shelter" instead of "too many families are homeless").

Unspecified / Hypothetical Problem

"Statements that fail to quantify or define what is actually wrong (e.g., ""If we do X, things will be better"").

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Hiding causal claims inside the problem statement

(e.g., "too few kids are vaccinated because parents believe vaccines cause autism").

Ignoring the context of the problem

(e.g., trying to directly copy policies across different regions without adjusting for density, culture, or infrastructure).

Why is it the government’s job to fix that problem?

Externalities, welfare lost, public and private costs

Markets work well when…

Many buyer and seller and none is big enough to set price

monopoly ; ex) single factory in town monopolistic cartel ; monopsony - one buyer. ex) labor markets ormedical drugs

Both sides know what theyre trading

Information asymmetry - used cars, health insurance

Price includes every cost and benefit

externality

Anyone who benefits can be made to pay

Public good

wtf

whats the market failure

Information asymmetry

Seller knows lemon but the buyer doesnt. Gov can regulate disclosure rules if market isnt doing it on its own

Natural monopoly

U only need one set of pipes in house anyways so no market competition ; Gov should either promote or regulate pricing

Adverse selection

If mostly sick ppl buy insurance, premiums will rise until healthy drop out and market unravels ; Govs mandate or subsidize coverage to keep healthy in

Bank runs

If depositors fear others will withdraw first even a sound bank can collapse ; So govs insure deposits and act as lender of last resort

Monopoly that isnt natural

Firms that grow by buying or crush rivals ; Antitrust authorities block mergers or break firms up

Undersaving

Ppl keep putting off saving for old age. Govs can mandate saving or make default (nudge)

Other roles for government

Public good provision ; Non excludable goods and non rival ; ex) national defense or lighthouse ; Private markets tend to under supply

before proposing policy think about justificaiton

efficiency and values

Ceteris paribus

"All else equal" — real-world policy evaluation is tricky because conditions never remain equal

The counterfactual

What would have happened in the exact same place and time in the absence of the policy ; Medicine - randomized controlled trial ; Policy - natural or quasi experiments due to practical, ethical constraints

Randomized controlled trials

The gold standard in evidence gathering because random assignment balances both visible and unmeasured traits across groups

Difference-in-Differences / Natural Experiments:

Used when randomization is impossible, difficult, impractical (e.g., Card & Krueger's 1994 fast-food minimum wage study comparing New Jersey to Pennsylvania).

Read studies for design not bottom line

Dueling Certitudes Syndrome

"Ideologically driven certainty where opposing sides rely on fixed dogmatic beliefs rather than empirical evidence.

"

Wishful Extrapolation Syndrome

"The flawed assumption that a policy that worked in one specific location, scale, or context will produce identical results elsewhere without adjustment.

"

Every estimate is a best guess + margin of error

More spec the harm, more targetted solution should be

step 5 project the outcomes

should include intiial conditions. think of corner solutinos

Zero effect corner → totally ineffective. 0% ineffective

Extreme behavioral corner (perverse/unintended effects) - what if actors react in the most extreme, unintended way to max. Their own benefit?

The Catastrophic/Worst-Case Corner: What if the policy triggers a complete black market or systematic collapse? (e.g., U.S. Prohibition cutting legal drinking initially, but driving 100% of the trade into a massive criminal underground).

Policy addresses issues in two main categories

Efficiency (wasting value) and values (what we owe each other)

1 efficiency

Externality - public goods - info asymmetry - monopoly - other market distortions ; Policy can build and regulate the market plumbing to achieve efficient results when it cannot on its own

2 values

"Equity - rights and dignity - collective purpose

ex) not letting organ market be free market

; Policy can be built to preserve those preferences regardless of efficiency"

The 4 buckets of policy tools

1 change price 2 inform nudge or force 3 redistribute ; move money 4 provide public goods and services

Bucket 1 - Change the Price (Incentives): Taxes, subsidies, grants.

ex) scientific research and development of vaccines

B2 - Inform, nudge or force

Information, education and consultation, regulation, private rights, framework of economy . ex) information campaigns for cigs

B3 Redistribute - move money

Subsidies and grants * (transfers) taxes* (progressive) - ex) food stamps, social security

B4 Provide public goods and services

Service provision ; Financing and contracting ; ex) national security, infrastructure

bucket 1 limitations

"Incentives may be too weak, framed differently, or avoided.

"

b2 limits

Limitations: does not guarantee people will behave as intended. 1. Information only knows when people can ACT on it (ex addiction habit convenience or other). ex) secondhand smoke dangers. 2. Nudge can have limited or context dependent effects. Depends on setting and population. Effects observed in small or selected academic studies may not translate well to larger gov programs 3. Regulations can create unintended consequences. Ppl may comply while undermining purpose. May encourage gaming, substitution or black markets. 4. Laws only work when properly enforced. - detection, monitoring, and credible penalties.

b3 redistribute - move money

justifications - efficiency (addressing gaps in private markets), values

b3 limits

Can reduce poverty and address market failures, but may involve efficiency and labor-supply trade-offs.

1. Change the price

Taxes, subsidies, grants

2. Inform, nudge, or force

Information, choice architecture, laws

3. Redistribute

Taxes, transfers, public benefits

4.Provide public goods and services

Service provision ; Financing and contracting ; ex) national security, infrastructure .

main limitation of b4

Quality ; Targeting ; Cost - every dollar comes from taxes or from another program. Cost efficiency? Choice - one model for everyone . some people would rather get the money and decide for self

its really about how much choice we leave to individuals, whether we feel individuals can make the “right” choice 

• Can be a question of values, etc 

More choice for family vs the government 

• Cash 

• Vouchers - food stamp, housing, school vouchers

• Thing itself  - public schools, medicaid public housing 

Trade offs are an inevitable reality

imperfect targeting vs. being late; distributing resources vs. discouraging work; etc/

Designing the right policy is also uncharted territory

best case we know which way people will respond, rarely by how much

• Design is bounded by the institutions we have - carbon tax where tax system already works, a quota wher eit doesnt, us checks via irs

• Good policy analysis isnt finding the perfect tool - its choosing well under uncertainty and honest about trade offs we face 

How to choose among alternatives

• b&p step 3 - first construct the alternatives 

  • Alternatives

  • Start comprehensive end up focused→ two to three at end 

  • Where do they come from - four buckets and combination 

  • Always include status quo - not doing anything is always an alternative 

  • Try to add an effect size based on evidence as much as possible, and use a range when the size is uncertain 

Practical framework for criteria

evaluate the three solutions in the debate according to moore’s triangle

a good problem statement

desc the harm, ideally says who suffers and if possible quantifies without naming cause or cure