public policy midterm i flash cards
TRANSCRIPT
Public Policy Midterm I: Flashcards
By Vanessa Sochat
What is public policy?
An action by government that affects public
welfare
What is analysis, and what are the four main
components of analysis?
Analysis is breaking a problem into its parts, or
components.
Four parts are: Description
Explanation
Prediction
Prescription
What are the elements of policy analysis?
• Define the problem
• Identify Policy Options
• Predict consequences
• Value outcomes
• Recommend Policy
What is game theory?
game theory is a way of understanding
collective behavior of individuals in collective
setting. Figure out individual incentives, and let
everyone loose, and see what happens!
What are the three main types of games?
o Coordination Games
o Competitive Games
o Mixed-motive games
How do we solve coordination games?
o Communication
o Conventions
o Focal Points
What are examples of competitive games?
o Odds and Evens
o Chess and other parlor games
o Battle of Bismarck Sea
What is a maxi-min strategy?
the strategy with the best “worst”
outcome. We want to maximize the worst
possible outcome, or minimize the damage.
We opt for strategy that avoids worst possible
outcome
What is a dominant vs dominated strategy?
• A strategy is dominant if it does better than
all other strategies in at least one
circumstance and as well as every other
strategy in all circumstances (never loses)
• a strategy is dominated by another if it
does worse in at least one circumstance
and no better in all (never wins
What defines an equilibrium?
an outcome is in equilibrium if no party
regrets its choice of strategy, no player has
incentive to move away, no player regrets his
or her choice.
Ask if either player would want to switch out of
situation if they could, without moving other
player’s choice
What defines a prisoner’s dilemma?
There is a dominant strategy which leads to a
pareto inefficient point
What defines a mixed motive game?
• Variable-Sum
• Coordination Elements
• Competitive Elements
What is the purpose of a policy memorandum?
• provides busy policymakers with
information they need to do their jobs
• breads down complex issues into essential
facts
• evaluates alternative courses of action
• provides recommendations for action
What does the prisoner’s dilemma look like
(draw it in normal form)
Define pareto efficiency
• An outcome is Pareto efficient if it is not
possible to make one party better off
without hurting another player
• An outcome is Pareto inefficient if one (or
more) party can be made better off without
hurting another
How could we solve the prisoner’s dilemma?
• Contracting
• Communication
• Detecting Cheating
• Punishing Defection
• Trust
• Iteration (play again and again to learn
from the experience)
Issue Linkage (punishments, change the game)
What are some elements of a repeated game?
• Rounds
• Strategy in the shadow of the future: taking
into account today what payoffs might
follow from this decision in the future
• Reputation and trust: are very important.
Desired reputation depends on what game
you are playing (as nice and trustworthy,
irrational in Chicken , etc)
What are the rules of Tit for Tat, and what was
it?
• Rules
Start by cooperating. After that, copy what the
other player did in the last round
• Was a computer program/algorithm
entered in contest against others
What kind of “game” is the problem of global
warming?
• Multi party prisoner’s dilemma
If everyone reduces equally, then benefits
outweigh costs
if you are only country to reduce, costs
outweigh benefits
if you are only country not to reduce, benefits
are a LOT greater costs
• Dominant strategy is to defect, or free-ride,
so we have collective action failure
Discuss the argument for and against markets
and government intervention
Pro Market Position: markets are efficient
Governments are wasteful and (sometimes) don’t
act in the public interest
Pro Government Position: markets are unfair
and sometimes inefficient. Governments act in the
public interest
What is a market?
An institution for coordinating voluntary
exchange between individuals
Why are markets appealing?
• coordinates production and consumption
• Efficient
• The “invisible hand”
o Voluntary
o Automatic
individual interests � public interest
What are determinants of demand?
• income
• tastes
• complementary goods
• Other goods
o Prices
o Substitutability
When would we intervene in a market?
Some people can’t pay for certain product
Something isn’t equitable
If market is immoral (prostitution)
Positive/negative externalities
Wages
Where do we commonly see market failures?
• Public Goods
• Externalities
• Market Power (monopoly, cartels)
Imperfect information
What is a public good?
low “rivalry” in consumption (zero marginal
cost of production)
(often) impossibility of exclusion
Non-rivalrous and nonexcludable!
What are examples of public goods?
• fighting global warming
• national defense
• clean air
• concert
• park
• voting
What defines a common pool good?
• rivalrous and non-excludable
(think of tragedy of the commons and
freeways)
There is incentive to freeride � overuse
What is the main problem with public goods?
Collective Action for a Public Good is a Multi-
party Prisoner’s Dilemma
How might we solve collective action failures?
• Negotiations
o Cheating
o Enforcement
• Government
• Privatization
• Social Norms –attach public stigma,
encourage behavior, give sticker to vote!
What is an externality?
What is a network externality?
a positive consumption externality
As more people join the network, the network
increases in value.
How do we solve externalities?
• regulation
• Incentives (internalizing the Externality)
o Tax
o Subsidize
• Negotiated compensation: winners pay
losers
State Coase’s Theorum
Says that…
It doesn’t matter who is doing paying… if
property rights are well assigned in advance, then
parties can negotiate amongst themselves and
come up with solutions!
What are the requirements of Coase’s
Theorum? (for it to work)
Requirements:
• property rights are well defined
• people act rationally
• transaction costs are minimal
What is negotiation?
• To arrange or settle by discussion and
mutual agreement
• A mixed motive game with communication
• It is difficult to negotiate where neither will
trust (Samuel Johnson)
What is negotiation analysis?
• technique for modeling negotiations
• predict range of possible outcomes
• inform strategies for effective negotiation
• it is a science and an art
What are the elements of negotiation analysis?
• parties
• issues
• interests
• alternatives to agreement
• zones of possible agreement
How do you define interests in negotiations,
and what are the three types?
• preferences with respect to issue
outcomes, some idea of what they want
out of negotiation, inherent to them
• competing interests
• complementary interests
• convergent interests
What does BATNA mean?
Best Alternative to Negotiated Agreement!
(if no agreement is reached)
What does ZOPA mean?
Zone of Possible Agreement
(between the buyer and seller’s reservation
values)
outcomes better than BATNA’s are possible
for agreement (ZOPA) is this zone
Location of reservation values define a
Zone Of Possible Agreement (ZOPA)
What are other questions to consider for a
negotiation?
Are threats possible?
What are the norms?
Is third party intervention possible?
Are there time constraints?
Are the contracts binding?
Are negotiations private or public?
What is the value space?
The surplus that buyer/seller gets as a result of
the agreement, plotted on the x/y axis
What are elements of distributive bargaining?
leaning and influencing (divvy up fixed good or
value)
Anchoring and framing (First offers) the first
offer frames the negotiation, and matters!
Commitment (Patterns of Concession)
The EndGame
Ethics
Talk about benefits and risks of framing high
and low in issue space, from perspective of buyer
and seller.
ISSUE SPACE. Framing High: pushed in favor of
the seller, seller first offer is high. Risk of going too
high and having other person think you are
ridiculous
Framing Low: pushed in favor of buyer.
Define multi-issue negotiations in context of
one issue negotiations
• one issue negotiations are largely about
dividing a fixed pie
• multi issue negotiations are about baking a
bigger pie (and dividing it)
Define integrative versus distributive
bargaining
Integrative bargaining: we push out together
But we also have to worry about distributive
bargaining, diving between two parties (sideways
arrow)
What are tactics for creating value in
integrative bargaining?
o Sharing information
o Joint Problem Solving
What are the barriers to effective integrative
bargaining?
lack of information
• complexity
• Mistrust
• “claiming” behavior
o Misinformation
o Commitments
o We cling as much value as we can
for ourselves without thinking
about expanding frontier
What is the negotiators dilemma?
(draw it in normal form – what is it like?)
• The choice: create or claim value
What are rationales for government to take
action?
• public goods (non excludable and non-
rivalrous)
• Externalities
• Negotiation Failures
o Mistrust
o Lack of communication
o High transaction costs
o Complexity
o Claiming behavior
• inequalities or other value violations
What are five “modes” of government?
• direct provision of goods or services
• market perfecting (or improving)
• regulation
• negotiation facilitation
• redistribution
Define direct provision
• pure public goods such as Defense
• “tax and spend” may be pareto improving
• Problem: imperfect public goods (it isn’t
clear they actually exist)
• Examples: Location-specific goods: a
national park?
People that live closer can benefit more
Group specific goods: NEA? PBS?
Define market perfecting
• Taxes or subsidies
• Aligning private costs and benefits with
social costs and benefits
• Examples
o Gasoline taxes
o Research subsidies (or tax breaks)
• Issues
o how much is enough?
o Income and distribution effects
Define regulation
• restricting private actions not in the “Public
interest”
• Examples
o Driver’s licenses
o Drinking age
How does the government facilitate
negotiation?
• contract enforcement
• judicial system is government’s way or
trying to enforce contracts
• Mediation: get two sides to come to
agreement
• Arbitration: parties both agree that YOU
come up with solution
What are three rationales for redistribution?
o Initial endowments
o Unfair processes
o “lumpy” prizes
What are three policies of redistribution?
o Progressive taxation: you pay more
if you earn more
o Social insurance (persons with
higher income less eligible for
benefits, Medicare)
o Affirmative action
What are the three options to represent the
public interest?
Pareto principle
Voting
Potential compensation
What is the argument for/against the Pareto
principle?
If everyone is at least well off, then there is no
question that social welfare has improved
Limits to the Pareto Principle
o Rarely do policies allow a pareto
comparison
o Usually, someone is better off,
someone worse
Is the sacrifice of one person worth the benefit
of others? When do we allow tradeoffs?
What are arguments for/against voting?
voting to reveal welfare
individuals judge their own
interests
majority may be better off
Issues
does not measure strength of preferences
Voting does not guarantee a unique
“winner” (Arrow’s impossibility theorem)
“Tyranny” of the majority
Describe potential compensation
If we could pay the losers from the gains of the
winners then the policy is a kaldor hicks
improvement
Government favors groups that get them
elected!
• Social Benefit Cost Analysis: employs
potential compensation criterion
• Does not address equity questions