Public Policy Midterm I: Flashcards

By Vanessa Sochat

What is public policy?

An action by government that affects public welfare

Analysis is breaking a problem into its parts, or components. What is analysis, and what are the four main components of analysis? 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 o o

Coordination Games Competitive Games Mixed-motive games

How do we solve coordination games?

o o o

Communication Conventions Focal Points

What are examples of competitive games?

o o o

Odds and Evens Chess and other parlor games 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) 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 some elements of a repeated game? •

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 Multiparty 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!

Requirements: • • • property rights are well defined people act rationally transaction costs are minimal

What are the requirements of Coase’s Theorum? (for it to work)

• 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

Best Alternative to Negotiated Agreement! What does BATNA mean? (if no agreement is reached)

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 does ZOPA mean?

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 o

Sharing information 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 • The choice: create or claim value

What is the negotiators dilemma? (draw it in normal form – what is it like?)

• • •

What are rationales for government to take action?

public goods (non excludable and nonrivalrous) 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 o o

Initial endowments Unfair processes “lumpy” prizes

o What are three policies of redistribution? o


Progressive taxation: you pay more if you earn more Social insurance (persons with higher income less eligible for benefits, Medicare) 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? 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 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

What are arguments for/against voting?

Describe potential compensation

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