Economics of Public Policy

Spring 2021

Professor Molly Lipscomb

Garrett 103
434 982 1561
molly.lipscomb@virginia.edu
In person class: 12:30-1:45
Online class: 10:15-11:30
Office hours: Tuesdays 1:15-3:15
Class: Garrett Great Hall
Zoom link for online class:
https://virginia.zoom.us/j/94602301415?pwd=Z0pRVldneXBnaTV2MjBQSUF6VHg4Zz09
Zoom link for office hours:
https://virginia.zoom.us/j/93643748548?pwd=ZTUvVk8vUUNtNnVLYmZqVVJKOXEvdz09

TAs: Zack Kathol and Kate Cronin

TA Office hours: Zack 5-7 Wednesdays; Kate 10-12 Fridays

Course Description:

What are the drawbacks to the current design of the food stamp program? What are the
limits of cap and trade policies in terms of reducing the emission of greenhouse gasses?
In an environment in which we have limited budgets for social programs, how should
priorities be set in order to increase total welfare as much as possible?

Economics is the study of how people respond to incentives. This course is designed to
provide you with the tools to describe issues in the implementation of programs, and
evaluate policies and programs and proposed changes to them. We will study logical
frameworks for predicting how people may respond to the incentives created by policy
changes and you will apply these through case studies and analysis of news events. By
the end of this course, you will be able to explain whether government intervention is
necessary or a problem can be solved by the free market, describe types of programs that
may work to reduce a particular type of social problem, analyze the tradeoffs associated
with various types of policies, and evaluate whether the benefits of a policy outweigh its
costs both for the government and society as a whole. You will learn to graphically
represent households’ and companies’ budgets and preferences, and use these
representations to predict how their behavior will change when public policy changes the
options available to them.

My goal is that when you leave this course, you will be able to critically evaluate public
policies in order to advocate for policies that are important to you in the future and
identify problems with policies others are proposing.

By the end of this course you will be able to:

 1. Explain the role of government in the economy and the benefits of different types
of regulatory structures.
2. Communicate the tradeoffs associated with different policies.
3. Use economics tools as a logical framework through which to critique potential
policy changes.
4. Analyze the incentives that new policies create and the likelihood of them
creating growth and opportunities for vulnerable populations.
5. Evaluate cost-benefit analyses of different policies.
6. Critically examine published policy analysis on social welfare programs.

Prerequisites: Principles of Microeconomics.

Textbooks:

Gruber, Jonathan. Public Finance and Public Policy. (Any Edition). Worth
Publishers.

The Economist (recommended, but optional)

Expectations: Watch the economics lectures and read the assigned readings before the
class in which they will be discussed, and ask questions whenever you find something
confusing or problematic. Complete homework assignments before they are due, making
sure you leave yourself enough time to get answers to any questions you might have.

If you miss any classes, you are still responsible for the material that was covered. The
material we cover each week builds on the content of the previous weeks. You should try
to catch up right away; if you do not, you will find yourself slipping farther and farther
behind. Get notes from a classmate, watch the relevant videos, and thoroughly review
the relevant section of the text. After going through these steps, if you have questions,
then visit your TA during office hours, if you still have questions, visit me during office
hours or make an appointment. Exceptions to due dates for homeworks, memos, or any
other assignment, and exams will be allowed only for University sanctioned reasons.

Research shows that students do better when they and their peers do not use laptops in
class, so for in-person students, please keep laptops, tablets and phones in your bags for
the benefit of you and the class as a whole.

Course Outline
(Note that this is tentative; weeks are subject to change per my notice. The objectives
under each topic should by no means be considered exhaustive, they are only meant as a
guide.)

Wee Topic
k
1, 2 Can government increase efficiency? Introductions, Market Game, Surplus,
and First and Second Welfare theorem

Readings: Gruber both 1.1 and p. 49-54

Economics Learning Objectives:

How does trade lead to efficient allocations?
Does the market extract all of the gains from trade?
First and second welfare theorems

Public Policy Learning Objectives:

How does having a larger market affect efficiency?
What happens to the number of trades when the government intervenes in the
market?
How can we use economics to evaluate policy?

Policy application: Hunger, famine, and optimal government aid.

Policy paper 1: USAID/USDA Monetization, under which conditions does it

increase and under which conditions does it decrease efficiency? Due 2/24

Part I: Welfare Programs: Does receiving welfare discourage work?

2,3,4 TANF and other welfare policies: Budget Constraints, Indifference Curves
and Constrained Maximization

Readings: Gruber Chapter 2

Poor Economics Chapter 2, study guide due 2/22

Economics Learning Objectives:

What is a budget constraint and how is it affected by changes in prices and
income?
How do price changes and income changes cause people to choose different
bundles?
Public Policy Learning Objectives:
What is the difference between conditional and unconditional transfers?
How might work requirements affect welfare program recipients in intended and
unintended ways?

Conditional and Unconditional Transfers: Should we be forcing poor

households to spend aid money on food through food stamps rather than just
providing them with cash?

Readings:
 Hoynes, Hilary and Diane Schanzenbach, (2009). “Consumption responses to in-
kind
transfers: Evidence from the introduction of the food stamp program. American
Economic Journal: Applied Economics, 1(4), 109-139. Response due 3/3

McIntosh, Craig and Andrew Zeitlan “Benchmarking a Child Nutrition Program

against Cash: Experimental Evidence from Rwanda.” Working Paper, 2019.
Response due 3/1

Ladd, Helen “School Vouchers: A Critical View” Journal of Economic

Perspectives. 2002. Response due 3/8

Neal, Derek. “How Vouchers Could Change the Market for Education.” Journal
of Economic Perspectives. 2002. Response due 3/10

Homework 1 due 3/15

Case Study: 3/3, due 3/5

Policy Paper 2: Determining the Optimal Structure for COVID Relief. Due
3/17

5, 6,7 How do my choices affect my neighbors and should the government be

involved? Externalities and Regulation

Reading: G Chapter 5 and 6 (focus on 5)

Economics Learning Objectives:
Calculating the “optimal” level of externality-producing goods
Comparing taxes and quotas on pollution
Uncertainty in Costs and Damages

Public Policy Learning Objectives:

Determining tradeoffs between policy tools: taxes, subsidies, quotas and cap and
trade.

William Nordhaus: Nobel lecture 2018. You can skip the first 5 minutes.
https://www.youtube.com/watch?v=h1RkSuAs03Q respond to study guide
questions due 3/22

Goulder, Larry. Markets for Pollution Allowances: What are the (New)
Lessons? Journal of Economic Perspectives. V27 n1 Winter 2013. Study guide
due 3/24.
 Homework 2: 3/31

Case Study 2: Environmental Regulations 4/5

Policy Analysis Paper 3: Cap and Trade and REGGI 4/7

8,9,1 Is my favorite policy the best possible use of the next available government
0 dollar? Cost Benefit Analysis
G. Chapter 8
“The price of Prudence.” Economist January 24, 2004

“Can Technocracy be saved? An interview with Cass Sunstein.” Vox October

22, 2018. Dylan Matthews.

Watch: Watch: 2019 Nobel Prize Lectures in Economic Science:

https://www.youtube.com/watch?v=dhdNYRliJYA&feature=youtu.be&t=985
(focus on the Duflo and Kremer presentations--the last two). Response to study
guide questions 4/12

Albouy, Graf, Kellogg, Wolff, “Climate Amenities, Climate Change, and

American Quality of Life.” 2015. 4/28

Case Study 3: Cost Benefit Analysis of an Education Program 4/26

Economics Learning Objectives:

Defining a Counterfactual
Opportunity Cost
Present Value
Value of a Statistical Life

Public Policy Learning Objectives:

Comparing policies through CBA
Cost Effectiveness vs. Cost-Benefit Analysis

Homework 3: Due 4/26

CBA Policy Analysis Paper peer feedback class session: 5/5/21

CBA Policy Analysis Paper due: Thursday May 13, 9am

Learning Assessments:

1). Policy critiques (3) 12% each, 36% total.

Purpose:
These two page papers are meant to provide you with an opportunity to apply the models
that we are working on in class and demonstrate your ability to use economics tools as a
logical framework to assess policy changes. They will help you assess your ability to
independently use economic logic in order to evaluate public policy problems and
provide you with a gauge as to whether you are keeping up with the material presented at
that point in the class.

2) One written Cost Benefit Analysis (25% of course grade)

Description/Purpose
Is your favorite policy the best possible use of the government money spent to fund
it? Benefits of many public policies extend beyond the monetary value that
beneficiaries receive to the impact that it may make on their choices and the benefits
that those choices have on others. Costs may extend beyond the dollar expenditure
on a program if beneficiary incentives change and they quit their jobs or react with
other non-socially optimal behavior. These benefits and costs can be things that are
extremely difficult to value (the decreased risk of death in a car accident when seat
belts are required, for example). You will use economic methods and your research
to assign values to these benefits and costs to the greatest extent possible through
revealed preference methods. You will then determine when you expect these costs
and benefits to occur and find the net present value of the program.

This Cost/Benefit Analysis will provide you with the opportunity to practice
estimating and assigning values to the benefits of programs and finding their costs.
These are commonly written and debated in considering changes to policies, so you
should be able to write and defend one for policies that interest you.

There are three parts to this assignment: first draft outline (1%) graded on
completion, peer evaluation (4%), final draft (20%). I will provide you with more
extensive instructions on each element of the assignment posted to Collab.

3) Three during class (over Zoom) case studies (9% of course grade—3% each)

Purpose: The case studies provide you with the opportunity to practice implementing
economic logic and working as a team.

Description:

Three class sessions will be devoted to small-group work on case studies related to
the application of the economic problems we are studying to the real world. One
case study evaluates the expansion of the School lunch program to school breakfasts,
another evaluates the introduction of a carbon tax, the third is a cost benefit exercise
on an education policy. All students will be expected to actively contribute to solving
these problems in class. You will likely want to include graphical explanations
discussing any change in budget constraints or preferences created by the policy. At
my discretion, individual members of the group may receive higher or lower grades
 than the group average, to reflect individual contributions or lack thereof. On days of
the case study, the in person class will need to be conducted over Zoom so that
groups can work together while social distancing. Students who are absent from class
will receive a 0 on the exercise completed in that class; it is not possible to make up
the assignment or submit it outside of class unless you have a University sanctioned
reason for being absent. You will have a group of three people which will be
randomly assigned, and you will evaluate potential issues in a policy proposed by
your “boss.”

Criteria: You should make sure to answer all of the questions posed in the
assignment. Complete answers that employ economic logic will receive a check.
Answers that are exceptionally thoughtful and employ only correct uses of economic
logic will receive a check plus. Answers that show a complete lack of application of
the student or a failure to turn in the assignment will receive a 0. Because of the
constraints of gradebook, the check plus will be recorded as a 3, check 2, check minus
1, failure to turn in the assignment 0. A check plus is worth 95%, check is worth
88%, check minus will receive 75%.

4) Paper/Video Responses (9%)

Description:

I will provide questions (a “study guide”) about the papers that you are to read, and
the Nobel lectures you are to watch. You will turn in your responses to the
questions.

Purpose: This assignment will provide you with an opportunity to practice quickly
reading a technical paper or listening to a technical presentation without getting lost
in the details. The questions are meant to guide you to the most important material in
the paper or video.

Criteria: Graded with check, check plus, check minus, zero. Responses that
demonstrate that you have read or watched the assigned material and located the
answers will receive a check. Responses that include thought that goes substantially
beyond just delivering the information from the assigned material and demonstrate
thought will receive check plus. Failure to turn in the assignment or failure to do a
large part of the assignment will result in a 0. Because of the constraints of
gradebook, the check plus will be recorded as a 3, check 2, check minus 1, failure to
turn in the assignment 0. A check is worth 88%, check plus is worth 95%, and check
minus is worth 75%.

5) Homework (21% of course grade: 3 homework assignments, so approx. 7% each)

Description:
Homework assignments will provide you with an opportunity to practice solving
numerical policy related problems and developing proficiency with the logical structure
of an economics argument. Your homework assignments will provide you with 6-10
questions on a topic, and you will be allowed to choose a subset of the questions to do
which will be graded.

Frank Batten School of Leadership and Public Policy Honor Statement

The Frank Batten School of Leadership and Public Policy embraces and upholds the
University of Virginia’s Honor Code principles that mandate that students will not lie,
cheat, or steal, and we will not tolerate the actions of those who do. Acting in a manner
consistent with the principles of Honor benefits every member of the Batten School
community.

We expect every student to comply fully with all provisions of the UVA Honor System.
By enrolling in this course, you agree to abide by and uphold the Honor Code System of
the University of Virginia. The following applies to your Batten course work and
requirements, and unless otherwise specified by your instructors:

 All graded assignments must be pledged.

 Students may not access any notes, study outlines, problem sets, old exams,
answer keys, or collaborate with other students without explicit permission.
 When given permission to collaborate with others, students will not copy answers
from another student.
 Students should always cite any resources or individuals they have consulted to
complete an assignment. If in doubt, sources should be cited.
 Suspected violations will be forwarded to the Honor Committee, and, at the
discretion of the instructor, students may receive “no credit” for the assignment in
question, independent of the actions taken by the Honor Committee.
 Any questions about what is or is not permitted on an assignment should be
clarified by students with their instructors prior to the completion of their work.

If you believe you may have committed an Honor Offense, you may wish to file a
Conscientious Retraction (“CR”) by calling the Honor Offices at (434) 924-7602.
According to Honor guidelines, for your retraction to be considered valid, it must, among
other things, be filed with the Honor Committee before you are aware that the act in
question has come under suspicion by anyone. More information can be found at
www.virginia.edu/honor. If you have questions regarding the course honor policy, please
contact your honor representatives.

Frank Batten School of Leadership and Public Policy Grading Policy

Due to increasing grade inflation in American higher education, the Frank Batten School
has set a grade normalization policy, with a suggested grading distribution. All Batten
courses should have a mean grade that does not exceed a 3.5 grade point average with an
emphasis on a well-distributed range of grades. If grades deviate significantly from this
suggested distribution, a dean will discuss the course grades with the faculty member.
During Spring 2021, any course GPA target will be applied to the underlying data (i.e.
applied to grades before CR/GC/NC is officially assigned). We expect that some
distributions for FINAL COURSE grades (after CR/GC/NC is officially assigned) may
be above a 3.5 GPA target. We also recognize these are challenging times for both
teaching and learning.

Additional Time
Additional exam time is not given automatically to students whose first language is not
English. Dictionaries are permitted, at the discretion of the faculty member. Students with
disabilities in need of accommodation should contact the UVA Student Disability Access
Center at 434-243-5180. To preserve anonymity, students should not discuss reasons for
the accommodations with the course instructor.

Frank Batten School of Leadership and Public Policy Wellbeing and Duty to Care
Statement

If you are feeling overwhelmed, stressed, or isolated, several individuals at Batten are
ready and want to help. Both Amanda Crombie, Director of Academic Programs, and Jill
Rockwell, Assistant Dean for Student Services, are available to support all Batten
Students. They are readily accessible during walk in hours or by setting up an
appointment. Additionally, all Batten faculty and staff take student health and safety very
seriously. Therefore, as part of their duty to care for distressed individuals, faculty and
staff will refer students who threaten self-harm or suicide to appropriately qualified
personnel at the earliest opportunity.

Alternatively, there are also other University of Virginia resources available. The Student
Health Center offers Counseling and Psychological Services (CAPS) for its students. Call
434-243-5150 (or 434-972-7004 for after hours and weekend crisis assistance) to get
started and schedule an appointment. If you prefer to speak anonymously and
confidentially over the phone, call Madison House’s HELP Line at any hour of any day:
434-295-8255.

If you or someone you know is struggling with gender, sexual, or domestic violence,
there are many community and University of Virginia resources available. The Office of
the Dean of Students, Sexual Assault Resource Agency (SARA), Shelter for Help in
Emergency (SHE), and UVA Women’s Center are ready and eager to help.

Learning Disabilities, Title 504 and Americans with Disabilities Act

The Student Disability Access Center (SDAC), located in the Elson Student Health
Center, can arrange diagnostic testing. SDAC makes recommendations to faculty in
terms of proposed classroom accommodations for specific learning disabilities and other
medical conditions covered under federal legislation. In this course we follow all
recommendations of SDAC, but requests must be formally made through SDAC—I will
not be able to give accommodations outside of those suggested by SDAC. Please make
sure that SDAC accommodations are sent to me at least 48 hours before any exam or
relevant assignment.