Public Policy 101 Midterm

What is policy analysis?

a process that usually begins with problem definition rather than the broader inventory phase of the planning process. It also yields alternatives, but the final document is likely to be a memorandum, issue paper, or draft legislation. It has a specific client and a single point of view, a shorter time horizon, and an openly political approach. The final product of such a process is called a policy analysis.

What does policy analysis aim to achieve?

Quick, efficient, understandable options for a given issue

Eightfold Path general

Identify a social goal, diagnosing a problem, identifying an institution for action, evaluating the substance/politics of options, and analyzing the potential for change

Eightfold Path

1. define the problem

2. assemble some evidence

3. construct alternatives

4.select the criteria

5.project outcomes

6.confront trade offs

7. stop, focus, narrow, deepen, and decide

8. tell your story

Data v. information v. evidence

Data- facts about the world

Information- facts with "meaning"

Evidence- facts that affecting people's existing beliefs

Components of perfect competition

1. numerous buyers and sellers

2. Zero entry and exit barriers

3. Perfect factor mobility

4. Perfect information

5. Zero transaction costs

6. Profit and utility maximization are motives for firms and consumers

7. Homogenous Good

8. Minimal added returns to scale for produce (one firm shouldn't usurp all benefits)

9.Full property rights and costless enforcement

Under perfect competition, firms are price takers or searchers?

Price takers. In a monopoly, firms become price searchers

4 main types of market failure

1. Can't collect payment from everyone who benefits (ex - scientific discoveries)

2. Can't get producers to pay for total cost (ex - clean air many cars use up)

3. Consumers can't evaluate qualify because they lack expertise (ex - car repair)

4. Marginal cost < average cost (ex - articles distributed over internet, causing prices to fail)

Common pool resource failure

Definition

Example

Potential Solution

-overuse of unowned resource

-fisheries

-licensing and use limits

negative externality failure

Definition

Example

Potential Solution

-excess production can harm society

-pollution

-pigovian taxation

Positive externality failure

Definition

Example

Potential Solution

-Underproduction; failure to meet consumer demand

-Flower gardens

-subsidies

Public goods failure

Definition

Example

Potential Solution

-non-excludable, non-rival consumption leads to free riding and underproduction

-Fireworks and street lights

-subsidy

Monopoly/Oligopoly failure

Definition

Example

Potential Solution

-price discrimination, industry concentration, and underproduction

-Stubhub and TicketMaster

-antitrust legislation

Information Failure

Definition

Example

Potential Solution

-Information asymmetry between producers and consumers

-mechanic or pharmaceutical products

-regulation and labeling

transaction costs failures (2 forms)

Definition

Example

Potential Solution

-buyers and sellers are unable to locate each other easily; high costs protecting creative works

-labor markets or piracy

-job fairs or patents

Government failure

-3 examples

an economic inefficiency caused by a government intervention if the inefficiency would not exist in a true free market

-regulatory capture, policy myopia, distortion of markets, administrative costs, unintended costs

B&P say to model the system in which the problem is located." What types of models do they describe?

Market, production, conformity, and evolutionary

On the lecture slide on "selecting criteria," what are some of the criterions that are listed?

-Efficacy

-Efficiency

-Feasibility

-legality

-Political acceptability

-equity (fairness/justice)

-freedom

What is the relationship between perfect competition and market failure?

Market failure involves the violation of those same assumptions/conditions

Difference between pareto efficiency and kaldor-hicks

1. Pareto says proceed only if no one is made worse off

2. Kaldor-Hicks says proceed when benefits exceed costs in the aggregate

Imagine UC Berkeley introduces a new system to detect Covid -19 antibodies, testing students, faculty and staff physically who enter campus facilities. Since no detection system is perfect, what inaccuracies would constitute Type I and Type II errors?

Type 1 Error: an error of commission - the detection system says certain students have COVID-19 antibodies when they really don't or maybe they have worn off, so they are let onto campus and then possibly infect other students

Type 2 Error: an error of omission - the detection system says certain students do not have the antibodies when they really do, so they are not allowed on campus even though they would not pose a threat to others

List a couple of Kramer's 10 commitments

Anti-racism personnel practices and trainings

Pay equity

Employee's voice

Election day: paid holiday

Lobbying for good, in the public interest

Living wage

Paid parental/sick leave

Full health care coverage

Emergency relief funds / low-cost loans

Democratize job applications and recruitment

Adverse selection

A process in which "undesirable" (high-cost or high-risk) participants tend to dominate one side of the market, causing adverse effects for the other side; often results from asymmetric information

*conditions exist before the transaction (buying flood insurance in a flood prone area)

behavioral economics

study of psychology as it relations to econ decision making processes of individuals

cartel

group of firms that agree to restrict trade to their mutual benefit

comparative advantage

the ability to produce a good at a lower opportunity cost than others

-principle is that firms will specialize in producing goods for which they have the lowest opportunity cost compared to other entities

competition

rivalry among buyers or sellers of outputs or among buyer or sellers of inputs

scarcity

state of nature in which resources are limited and wants are unlimited

cost

the highest-valued (best) forgone alternative the most valuable option that is sacrificed when a choice is made

full cost

combined measure of all of the things that must be given up to undertake an activity

intermediary firm

companies that provide services that enable buyers and sellers to engage in trade

labor force participation rate

the sum of all people who are working or are available for and looking for work, divided by the population

Law of demand

quantity demanded and price inverseley related

law of supply

direct relationship between price and quantity supplied

time cost

economic value of the time a person must sacrifice to engage in an activity

Type I error

error of commission

Type II error

error of omission

Franchise

business whereby the owner licenses its operations

independent contractor 3 requirements

-free from employer control

-perform not integral work for the company

-routinely does same work for others

rates of return

net benefit, typically in percentage terms

profits

income generated by selling something for a higher price than was paid for it

Potential Pareto Improvement

when it is possible for the winners to compensate the losers so that at least one person would be better off, and no one worse off

patent

legal protection for an invention that prevents others from imitating the invention without compensating the inventor

price discrimination examples

-when price is the same but MC is different

-when the price is different but MC is the same

3 preference properties

Complete- ability to compare bundles; awareness + responsiveness

Transitive- if someone prefers A to B, B to C, then naturally, they prefer A to C

Reflexive- any bundle of goods, A, is at least as good as itself

present discounted value

Today's value of a payment to be received in the future when the interest rate is i.

price-taking behavior

no one firm can set the market price

external benefit

when producing or consuming a good causes a benefit to a third party

-social benefit will be greater than private benefit

external cost

occurs when producing or consuming a good or service imposes a cost upon a third party

-social costs exceed private benefit

profit-maximizing firm

A firm maximizes profit by operating where marginal revenue equals marginal cost. In the short run, a change in fixed costs has no effect on the profit maximizing output or price

quality-adjusted prices

The process - or the result of the process - of estimating what the market price of a replacement product would be if it had the characteristics of the product it replaces and with whose price its price is to be compared

What makes consumers rational?

their preferences

rational ignorance

A state in which knowledge is incomplete because obtaining perfect information is too costly

risk neutral

constant marginal utility; indifferent between a certain prospect of income and uncertain prospect of equal expected monetary value

risk non preferring

the utility of certainty outweighs one of uncertainty; marginal utility increases but at a diminishing rate

risk preferring

Someone who is risk-seeking or risk-preferring has an increasing marginal utility of income and, therefore, prefers an uncertain prospect of income to a certain prospect of equal expected monetary value; marginal utility is increasing

network effect

increases in the value of a good or service that occur when more people use it

platform firm

Companies whose sole business is to create and service two-sided markets, typically using computer software and hardware to accomplish this

utility function

tangential to the budget constraint, measures the amount of satisfaction obtained from a specific combination of a specific bundle of goods

variable costs

costs that vary with the quantity of output produced

capitalist system

- an economic system in which there is large-scale private ownership of resources and in which market incentives plays a dominant role in allocating those resource

compensating differentials

higher wages that compensate workers for unpleasant or dangerous aspects of a job

AB5

extends employee classification to gig workers

Affirmative action

Affirmative action refers to a set of policies and practices within a government or organization favoring particular groups based on their gender, race, creed or nationality in areas in which they were excluded in the past such as education and employment.

earned income tax credit

A tax policy that offers payments from the government to people who earn relatively low wages

Elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

income mobility

the tendency of individuals to move around in the income distribution over time

negative tax

a payment from the government made to supplement the incomes of people who earn low wages

perfectly inelastic

quantity does not respond at all to changes in price (E=0)

economies of scale

a condition of production in which the greater the level of output, the lower the average cost of production. Where such conditions exist, one firm can produce any level of output at less cost than multiple firms

efficiency

hen all goods and factors of production in an economy are distributed or allocated to their most valuable uses and waste is eliminated or minimized

incentives

perceived consequences of action or decisions; they may be positive or negative, monetary or nonmonetary

indifference curve

represents all the combinations of x and y that give the consumer the same amount of utility or well-being

internality

An internality is the long-term benefit or cost to an individual that they do not consider when making the decision to consume a good or service.

long run

when all costs become variable

Marginal cost

the cost of producing one more unit of a good

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

market failure

economic inefficiency that results from the free market itself and can be potentially corrected through government regulation

Monopoly

A market in which there are many buyers but only one seller; price searchers

moral hazard

when the behavior of the insured person or entity changes after the purchase of insurance so that the probability of loss or the size of the loss increases.

monitoring costs

costs that must be incurred to observe the behavior of a politicians or other agent to whom responsibilities have been delegated

natural monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

-caused by economies of scale

-public utilities (local water and power companies)

3 quibbles of UBI

-reducing the incentive to work

-hurting the poorest of the poor

-recipients may not spend wisely