Final Exam Flashcards
KISS, the Grandma Bessie Test
Can you explain your policy analysis/problem in a 90 sec pitch?
Deadweight Loss
Loss of economic efficiency when can occur when market equilibrium is not achieved.
Cost effectiveness analysis
economic analysis that compares relative cost to outcomes/effects of different courses of action. Different from cost-benefit analysis.
Rent-seeking behavior
Manipulating policy/economic condition to increase profit to excess.
Tax incidence
Division of the tax burden between consumers and producers.
Consumer surplus
Difference between what consumers are willing and able to buy/pay and what the quantity they can buy and what they actually pay.
X-inefficiency
Difference between efficient business behavior theorized by econ theory and the observed, actual practice in a low-competition environment.
Paradox of voting
Often, the cost of voting for a rational, self-interested is higher than the expected benefits from voting.
Client politics
When organized minority interest groups benefit at the expense of the public
Gini coefficient
A measure of wealth inequality in a country. Shows the distribution of wealth of population.
Conditions for efficient economy
- Efficiency of production
- Efficiency of consumption
- Efficiency of output.
* Everyone has the same info, price reflects actual costs.
Significance of diffuse interests
Many people can hold the same interest, but it is one of many interests that people care about. It is thus hard to organize people around one such interest.
The principal-agent problem
When an “agent” can act on behalf of or make decisions for the “principal” who is affected by these actions. Problem when agent acts in its own self-interest which may be contrary to that of the principal. (Employer-employee)
Dealing with uncertainty in cost-benefit analysis
- Conduct a break-even estimate
- Observe trends
- Make magnitude estimates of the projected outcome
Twenty Dollar Bill test
Why hasn’t this policy been implemented yet if it’s such a good idea?
Resource withdrawal
If there is a change in the political climate, resources available to policy may change.
Capture
Policy can be made but the industry can hold all the cards meaning your hands are tied.
The Bluff Principle
Bottom Line Up Front: draw your central conclusion first then elaborate
Wimpy’s principle
A dollar tomorrow is worth less than a dollar today.
Discount rate, or the rate of time preference
Different between the value of a dollar in one period of time and the following period.
Corollary to Wimpy’s
A dollar in the distant future has very little value even though it will be “worth” a dollar when you get it.
Internal validity problem
Does the evidence in your analysis support your claim about cause and effect between variables? “Good practice” does not always guarantee this, nor can good results always be attributed to good practice. Often can’t be sure that good practice helped a policy.
External validity problem
extrapolating the effectiveness of a program in different settings
Practice
Tangible, visible behavior
Logic model/service blueprinting
approach to check assumptions about a program/model by breaking it down into inputs, outputs, resources, activities, and impact.
Free Lunch
Use a pre-existing, “free” resource to yield a result more cheaply
Safeguarding Startegies
Look for possible implementation issues and find ways to get ahead of them
Enhancing Strategies
Find what is in existence which could support your policy
Pigouvian Tax (Sin Tax)
Tax designed to change people’s behavior.
Social Minima
Community should ensure that all of its members enjoy a minimal decent standard of living.
Arrow Paradox
You get a different outcome each time depending on how a questions is asked. Important because all political decisions are made with an agenda: if you control the agenda, you can control the outcome.
Method of revealed preference
Two people have the exact same job except one is paid $40k and one is paid $42k because their job is 1% more dangerous. The $2k difference is assumed to be what that person needs in order to take on the additional danger. This person would be valuing their life (100% danger) at $200k by this math.
Potential Pareto Improvement
Winner of policy change can compensate the loser of the policy. But do they?
Pareto Improvement
everyone if better off; make someone better off without making someone else worse off. No one is worse off after the implementation of a policy.
Equity (4 options)
- Egalitarian: all members of society deserve equal amounts.
- Rawlsian: maximize the utility of the least well-off person
- Utilitarian: maximize the total utility of all members of society (“The greatest amount of good for the greatest number of people”)
- Market-oriented: the market outcome is the most equitable
Human Development Indicators (3 options)
- Life expectancy
- Income
- Education
Sunk cost
Cost that has already been spent and cannot be recovered.
Social construction (Ingram and Schneider)
- The value judgements that policymakers express when justifying their agendas to legislatures and the public.
- The enduring impact of these value-driven policies beyond the terms of single elections (and often long after they have left office).
“Fast thinking” element
Fly Paper Effect
Federal money comes from somewhere and lands somewhere, but it is not always funneled out where it was meant to go.
Inherent problems of decentralization
- Implementation problems of diffused authority.
2. Inequity and inefficiency from uncoordinated competition
Private marginal costs
Borne by (e.g.) a steel company to make one more unity of steel.
Social marginal cost
cost of production + externalities like CO2 emission.
Common Pool Resources
Rival and non-exclusive (my consumption means someone else might not be able to consume but people cannot be excluded from it.
Agency loss
The formal definition for it is the difference between the best possible outcome for the principal and the actual actions of the agent. If the agent abides by what the principal wants, then agency loss is low. If the agent does not abide by those terms, then the difference between the two widens and agency loss increases.
Slack maximization
Use of discretionary funds to i.e. hire more people to make work easier, allocate more money to travel expenses etc. to increase morale. Use of discretionary funds to make management easier for managers.
Efficiency
allocation of goods that maximizes the social welfare function
Interest Group Politics
Cost and benefits are concentrated
Entrepreneurial politics
Benefits are diffused but costs are concentrated
Client Politics
Benefits are concentrated but costs are diffused
Majoritarian Politics
Cost and benefits are diffused
Cost-benefit analysis
Analysis that measures whether benefits of a measure outweigh a cost.
Rational ignorance
knowing that you lack knowledge but understanding that getting the knowledge outweighs the benefits
The 5 “I”s
- Interests
- Ideology
- Information
- Incentives
- Institutions
