PPA 220A Applied Economic Analysis I Fall 2003 Professor Rob Wassmer Meeting 1 Introduction to Cours

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PPA 220A Applied Economic Analysis I Fall
2003Professor Rob WassmerMeeting
1Introduction to Course
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Logistics

• Introductions
• Myself and students (roll)
• Name Ids
• Syllabus
• http//www.csus.edu/indiv/w/wassmerr/ppa220a.htm
• Presentation sign up
• Viewing on Internet
• Need
• Name and SacLink ID
• http//www.csus.edu/uccs/webct

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Munger - Chapter 1 Policy Analysis as a
Profession and Process

• Policy Analysts Understand Knotty Problems
• Loosen the Gordian Knot
• Critique intellectual snobs, political
  popularity low, do not understand what people
  want)
• Goals
• Improve welfare of society
• Recognize problems early

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5 Step Process of Policy Analysis

• Consider State Budget Deficit
• 1. Problem Formulation
• Problem is statement
• Do not put answer in statement
• 2. Selection of Criteria to Evaluate
• Focus on ends not means
• Clear and precise
• Complete and mutually exclusive

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• 3. Comparison of Alternatives (CAM)
• 4 highly satisfies, 3 somewhat satisfies,
• 2 very weakly satisfies, 1 does not satisfy

Rating a1(V1) a2(V2) a3(V3) "a" represents
weights for 3 criteria add to one "V" represents
evaluation in cell Example tax increase
.3(1) .3(4) .4(2) 2.3 expenditure decreases
.3(4) .3(1) .4(2) 2.3 Mix of both and
bonds .3(2) .3(2) .4(4) 2.8
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• Tire Recycling Example
• http//www.csus.edu/indiv/w/wassmerr/tirestudy.pdf
  
• Pages 96 and 102
• 4. Consider Constraints
• Political and organizational
• Suggest build into CAM

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• 5. Implementation and
• Evaluation
• 3 types of evaluation
• Market accountability
• Political accountability
• Expert analysis
• Evaluation process
• Identify goals and objectives
• Construct model of means/ends relationships
• Research design to distinguish if ends achieved
• Collect data
• Analyze and interpret

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Munger Chapter 2 Deciding How to Decide

• Flow of Policy Wisdom from 3 Sources
• Markets, Politics, Experts
• Figure 2.1 Tensions and conflicts
• Experts vs. markets
• Politics vs. markets
• Experts vs. politics

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Figure 2.1 Tensions and conflicts
Markets

• Equity Policies
• Income Redistribution
• Resource Distribution
• Control Externalities

• Efficiency Policies
• Market structure
• Control Externalities
• Public Goods
• Information Asymmetry

Politics
Experts

• Institutional Reform Policies
• Information
• Values (Efficiency v. Equity
• Institutional Design

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Figure 2.3 3 stages of policy choice
Step 1 Is there a problem? What is it?
(c) Policy selected by democratic choice
Some Problem gets defined
Policy This is a collective decision problem
Step 2 Decide collectively or privately?
Step 3 How should we choose policy?
(d) Authority to make policy delegated to
experts
No ProblemGets Public Attention
Policy This is a private decision problem

• No explicit policy, or
• Citizens may choose whatever action they like,
  subject to restrictions such as civil and
  property rights of others

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Policy choice outcomes fall into 4 categories

• Problem remains outside of collective decision
  making
• Decide collectively that citizens make own
  choices
• Choose collectively
• Delegate collective choice to experts

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• Who Should Make Decision?
• Public if my choice affects you
• Significant externalities
• Private if my choice does not affect you
• Insignificant externalities
• Who Does Make Decision
• Individual if can choose alone and no
  interference
• No government intervention
• Collective if choice is made by group and binding
• Significant government intervention
• See Figure 2.4 for possibilities

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Figure 2.4 Collective and public decisions
Individual Decision I can choose, alone and
without interference
Collective Decision Choices are made by a
group, and are binding on all

• Liberty of the individual
• What socks should I wear?
• Whom should I marry?

• Tyranny of the majority
• Invasion of privacy
• Theft of property rights

Private Decision My choice has no consequence
for your welfare

• Underinvestment or else theft by the minority
• Air or water pollution
• Education

• Liberty of the Group
• How much to spend on defense?
• How to take care of the poor

Public Decision My choices affect your welfare
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Accelerate to 65 M.P.H. Now Empty Your Pockets
(NY Times, 7/7/02)

• Cash value on a statistical life
• Self-evaluation determined to be 1.54 Million
• How determined?
• (Hours saved by driving observed speed limit
  instead of 55 m.p.h.) x 20 an hour wage /
  additional deaths to driving over 55 m.p.h.
• Information to evaluate desirability of speed
  limit increase

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HomeworkDue the Start of Meeting Two

• (1) Do assigned reading and compose a typed and
  well-developed question from the reading assigned
  for second week that relates to something that
  you do not understand from it. From week one you
  could have asked I do not fully understand the
  conflict between experts and market outcomes.
  For instance, why does an externality generate an
  inefficient result ?
• (2) Provide a one-page, typed and double-spaced
  answer to question 2 in Munger, Chapter 2 (pp.
  52-53).