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Approaching Social Issues

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Approaching Social Issues Trade-Offs: An Introduction to Economic Reasoning and Social Issues by Harold Winter The Economic Way of Thinking Step 1: Identify the ... – PowerPoint PPT presentation

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Title: Approaching Social Issues


1
Approaching Social Issues
  • Trade-Offs An Introduction to Economic Reasoning
    and Social Issues by Harold Winter

2
The Economic Way of Thinking
  • Step 1 Identify the theoretical trade-offs of
    the issue in question.
  • This is the costs and benefits step
  • Regardless of the issue, there are always
    trade-offs to consider.
  • For any policy solution proposed, there will be
    proponents and opponents.

3
Ignoring Personal Concerns
  • Economists can argue in favor of drug abuse,
    theft, and even death.
  • Economists can argue against both safer products
    and pollution control.

4
Id like to introduce you to Marty Thorndecker.
Hes an economist but hes really very nice.
5
Step 2
  • Step 2 If possible, empirically measure the
    trade-offs to determine if the costs outweigh the
    benefits, or vice versa.
  • If you are interested in proposing a policy
    solution, it helps to have some relative idea of
    the magnitude of the trade-offs identified in
    step 1.
  • How you measure the trade-offs is an important
    issue.

6
Pitfalls in Step 2
  • First, empirical analysis requires data.
  • Often difficult to collect data that is accurate.
  • Second, the real world is a big and messy place
    to study.
  • Data simply may not be available.
  • Third, there are many statistical methods that
    can be used to measure the trade-offs.
  • Cheap computers means many different approaches.
  • Finally, empirical approaches can differ in
    statistical techniques, but also in empirical
    design.
  • What data are most relevant?

7
Empirical Work
  • It must be necessary to replicate your results.

8
Step 3
  • Step 3 Recommend (or implement) social policy
    based on the first two steps.
  • The bulk of public policy economic research is
    meant to imply, or recommend, policy solutions.
  • Some economists step out into the public arena
    and make their positions clear (e.g., John Lott,
    Steven Levitt).

9
Objectively Speaking
  • Many of the academic debates over public policy
    occur due to the difficulties associated with
    step 2.
  • Levitt vs. Lott. Did Roe v. Wade reduce or
    increase crime in the 1990s.
  • Its an empirical question.
  • Debate is not over the results, but over how
    those results were achieved (what model, what
    data, the statistical methods used).

10
Trade-Offs
  • The other two steps can pose challenges, too.
  • It is one thing to say that we are going to
    identify trade-offs, but it is another thing to
    say exactly which trade-offs we are going to
    identify.
  • Only the most relevant trade-offs are usually
    considered.
  • This depends on what policy objective is being
    considered.

11
Social Welfare Maximization
  • Lets assume we can identify and accurately
    measure costs and benefits.
  • If benefits of the solution outweigh the costs,
    adopt the solution.
  • If more than one solution, select the one with
    the greatest net benefits.
  • This is often referred to as social welfare (or
    social wealth) maximization.

12
Example
  • If our policy goal is to maximize social welfare,
    we want to identify trade-offs that affect social
    welfare.
  • New workplace safety regulation
  • Benefit reduce worker injury or death
  • Cost resources used to install and maintain the
    safety feature.
  • Once benefits and costs have been identified,
    then measure them.

13
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14
Measuring Trade-Offs
  • In measuring trade-offs, it is common for
    economists to place a monetary value on all the
    relevant costs and benefits.
  • Example
  • Costs of installation and maintenance of the
    safety feature will already be measured in
    dollars.
  • On the benefit side, a dollar equivalent can be
    established for the value of lives saved or
    injuries avoided.

15
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16
Definition of Social Welfare
  • Even if there is agreement on the broad objective
    of maximizing social welfare, policy objectives
    may differ due to differences in the definition
    of social welfare.
  • Economics of crime
  • Should the benefits that accrue to individuals
    who commit crime be added to social welfare?
  • This is opinion as to whether this benefit should
    be counted.
  • Policy objectives and definitions of social
    welfare are subjectively determined.

17
Defining Social Welfare
  • What should be counted as social welfare?
  • Economists tend toward inclusiveness in defining
    social welfare.
  • Economists are concerned about identifying costs
    and benefits, but not about who reaps the
    benefits or incurs the costs.
  • Efficiency vs. Equity
  • We will focus on efficiency, with an occasional
    mention of equity considerations.

18
Winters Game Plan
  • Primary focus will be on step 1.
  • Identifying trade-offs is the most enjoyable
    work, because this is where the policy analysis
    begins.
  • The least contentious step among economists.
  • Strong agreement over identifying costs and
    benefits.
  • The important debates over empirical work (step
    2) is not about the results, but over the data
    and the statistical techniques used.
  • Social welfare maximization is the objective
    policy makers should care about.
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