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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 Four parts are: Description
components of analysis? Explanation
Prediction
Prescription

• Define the problem


• Identify Policy Options
• Predict consequences
What are the elements of policy analysis? • 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

o Communication
How do we solve coordination games? o Conventions
o Focal Points

o Odds and Evens


What are examples of competitive games? o Chess and other parlor games
o Battle of Bismarck Sea
the strategy with the best “worst”
What is a maxi-min strategy? outcome. We want to maximize the worst
possible outcome, or minimize the damage.

We opt for strategy that avoids worst possible


outcome

• A strategy is dominant if it does better than


all other strategies in at least one
What is a dominant vs dominated strategy? 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

an outcome is in equilibrium if no party


regrets its choice of strategy, no player has
What defines an equilibrium? 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
• Variable-Sum
What defines a mixed motive game? • 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)

• An outcome is Pareto efficient if it is not


Define pareto efficiency 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
• Contracting
• Communication
• Detecting Cheating
How could we solve the prisoner’s dilemma? • 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
What are some elements of a repeated game? 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)

• Rules
Start by cooperating. After that, copy what the
What are the rules of Tit for Tat, and what was other player did in the last round
it? • Was a computer program/algorithm
entered in contest against others

• Multi party prisoner’s dilemma


If everyone reduces equally, then benefits
outweigh costs
What kind of “game” is the problem of global if you are only country to reduce, costs
warming? 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
Pro Market Position: markets are efficient
Governments are wasteful and (sometimes) don’t
Discuss the argument for and against markets act in the public interest
and government intervention
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

• coordinates production and consumption


• Efficient
Why are markets appealing? • The “invisible hand”
o Voluntary
o Automatic
individual interests  public interest

• income
What are determinants of demand? • tastes
• complementary goods
• Other goods
o Prices
o Substitutability
Some people can’t pay for certain product
Something isn’t equitable
When would we intervene in a market? If market is immoral (prostitution)
Positive/negative externalities
Wages

• Public Goods
Where do we commonly see market failures? • Externalities
• Market Power (monopoly, cartels)
Imperfect information

low “rivalry” in consumption (zero marginal


What is a public good? cost of production)

(often) impossibility of exclusion

Non-rivalrous and nonexcludable!

• fighting global warming


What are examples of public goods? • national defense
• clean air
• concert
• park
• voting
• rivalrous and non-excludable

What defines a common pool good? (think of tragedy of the commons and
freeways)

There is incentive to freeride  overuse

Collective Action for a Public Good is a Multi-


What is the main problem with public goods? party Prisoner’s Dilemma

• Negotiations
o Cheating
How might we solve collective action failures? 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.

• regulation
• Incentives (internalizing the Externality)
o Tax
o Subsidize
How do we solve externalities? • Negotiated compensation: winners pay
losers

Says that…
It doesn’t matter who is doing paying… if
State Coase’s Theorum property rights are well assigned in advance, then
parties can negotiate amongst themselves and
come up with solutions!

Requirements:

• property rights are well defined


What are the requirements of Coase’s • people act rationally
Theorum? (for it to work) • transaction costs are minimal
• To arrange or settle by discussion and
mutual agreement
What is negotiation? • A mixed motive game with communication
• It is difficult to negotiate where neither will
trust (Samuel Johnson)

• technique for modeling negotiations


What is negotiation analysis? • predict range of possible outcomes
• inform strategies for effective negotiation
• it is a science and an art

• parties
What are the elements of negotiation analysis? • issues
• interests
• alternatives to agreement
• zones of possible agreement

• preferences with respect to issue


outcomes, some idea of what they want
out of negotiation, inherent to them
How do you define interests in negotiations, • competing interests
and what are the three types? • 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


What does ZOPA mean? 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)

Are threats possible?


What are the norms?
What are other questions to consider for a Is third party intervention possible?
negotiation? Are there time constraints?
Are the contracts binding?
Are negotiations private or public?

The surplus that buyer/seller gets as a result of


What is the value space? the agreement, plotted on the x/y axis
leaning and influencing (divvy up fixed good or
value)
What are elements of distributive bargaining? Anchoring and framing (First offers) the first
offer frames the negotiation, and matters!
Commitment (Patterns of Concession)
The EndGame
Ethics

ISSUE SPACE. Framing High: pushed in favor of


the seller, seller first offer is high. Risk of going too
Talk about benefits and risks of framing high high and having other person think you are
and low in issue space, from perspective of buyer ridiculous
and seller.
Framing Low: pushed in favor of buyer.

• one issue negotiations are largely about


dividing a fixed pie
Define multi-issue negotiations in context of • multi issue negotiations are about baking a
one issue negotiations bigger pie (and dividing it)

Integrative bargaining: we push out together


Define integrative versus distributive But we also have to worry about distributive
bargaining bargaining, diving between two parties (sideways
arrow)
What are tactics for creating value in o Sharing information
integrative bargaining? o Joint Problem Solving

lack of information
• complexity
• Mistrust
What are the barriers to effective integrative • “claiming” behavior
bargaining? 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?)

• public goods (non excludable and non-


rivalrous)
• Externalities
What are rationales for government to take • Negotiation Failures
action? o Mistrust
o Lack of communication
o High transaction costs
o Complexity
o Claiming behavior
• inequalities or other value violations
• direct provision of goods or services
What are five “modes” of government? • market perfecting (or improving)
• regulation
• negotiation facilitation
• redistribution

• 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
Define direct provision national park?
People that live closer can benefit more
Group specific goods: NEA? PBS?

• Taxes or subsidies
• Aligning private costs and benefits with
social costs and benefits
• Examples
Define market perfecting o Gasoline taxes
o Research subsidies (or tax breaks)
• Issues
o how much is enough?
o Income and distribution effects

• restricting private actions not in the “Public


Define regulation interest”
• Examples
o Driver’s licenses
o Drinking age
• contract enforcement
• judicial system is government’s way or
How does the government facilitate trying to enforce contracts
negotiation? • Mediation: get two sides to come to
agreement
• Arbitration: parties both agree that YOU
come up with solution

o Initial endowments
o Unfair processes
What are three rationales for redistribution? o “lumpy” prizes

o Progressive taxation: you pay more


What are three policies of redistribution? if you earn more
o Social insurance (persons with
higher income less eligible for
benefits, Medicare)
o Affirmative action

Pareto principle
What are the three options to represent the Voting
public interest? Potential compensation
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
What is the argument for/against the Pareto comparison
principle? 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
What are arguments for/against voting? 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
Describe potential compensation elected!

• Social Benefit Cost Analysis: employs


potential compensation criterion
• Does not address equity questions