Week 1: Foundations of Public Policy

Dongil Lee

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 Outline

Course Introduction

Why Political Economy for Public Policy?

Why Should We Study Game Theory?

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 About the Instructor

▶ Assistant Professor at KDI School

▶ Political Science PhD at New York University
▶ Political economy of development in Africa
▶ More info on dongillee.com

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 About the Instructor

▶ Office hours: Fridays 3:30-4:30pm

▶ Office number: #S342
▶ Make an appointment outside office hours
▶ You can reach me via dlee@kdis.ac.kr

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 About the Team

▶ Teaching Assistant (TA): Yumi Park

▶ Recitation: to be decided
▶ Office hours: to be decided
▶ Email: yumi.park@kdis.ac.kr
▶ Class Assistant (CA): Francis Kwabena Adjei
▶ Email: francis.kwadjei@gmail.com

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 About Yourselves

▶ Full name
▶ Preferred name (first name or nickname)
▶ Home country
▶ Academic background
▶ Professional background
▶ Research interests
▶ What you expect to learn from the course

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 About the Course: Organization

▶ Designed for the first-year PhD students

▶ No prerequisite except for basic algebra/calculus
▶ Organization of the course:
1. Basic game theory (3 weeks)
2. Social dilemmas (4 weeks)
3. Constraints on policymaking (2 weeks)
4. Application (1 week)
▶ A heads-up:
▶ Final exam scheduled for April 25th (Week 12)

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 About the Course: Organization

▶ Each day, 2 sessions for 40 minutes each

▶ How a class would look like:
▶ 2:30-3:10pm Session 1
▶ 3:10-3:20pm Break
▶ 3:20-4:00pm Session 2
▶ 4:00-4:10pm Q&A

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 About the Course: Evaluation
1. Problem set assignments (30%):
▶ Due by the beginning of next class
▶ Submit your homework to your TA
▶ May work in a group but should submit your work
individually
2. Final exam (40%):
▶ Closed-book, in-class exam in Week 12
3. Presentation (30%):
▶ In Week 10, a 15 minute-long presentation of a paper
▶ During Week 4-6, pick 2-3 research article candidates
and get feedback
▶ During Week 7-9, give me a presentation and get
feedback

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 Late or non-submission policy

1. Problem set assignments (30%):

▶ After 2:30pm, 80% of your total score
▶ One day delay: 70%, two days delay: 60%...
2. Final exam (40%):
▶ Make-up exams are not allowed except in the case of a
medical or family emergency proven by official document
3. Presentation (30%):
▶ Missing one meeting: 80% of your total score
▶ Missing two meetings: 60% of your total score

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 About the Course: Preference

▶ First-name basis with each other

▶ Raise up your hand whenever you have questions
▶ Be active during group exercises
▶ Feel free to share your feedback
▶ Attending weekly recitation is mandatory
▶ Get the most out of office hours (Instructor/TA)
▶ Strict deadlines and grading policy

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 About the Course: Three Goals

1. To understand the core concepts of game theory

2. To understand social dilemmas and political constraints
3. To understand how game theory can be applied to various
areas of research

Ultimately, my goal is to help you to grow as a more

“sophisticated” empirical social scientist

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 About the Course: Questions

Any questions or suggestions about the course?

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 Outline

Course Introduction

Why Political Economy for Public Policy?

Why Should We Study Game Theory?

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Why Political Economy for Public Policy?

▶ Why should we study political economy for public policy?

▶ Traditionally, public policy education focuses on

technocratic concerns
(e.g., cost-benefit analysis, program eval., public admin.)
▶ However, the making and implementation of public
policy is fundamentally political
▶ The political economy approach takes constraints
imposed by the political process seriously

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Why Political Economy for Public Policy?

▶ Okay, then why not study specific political institutions

across the globe?
▶ Teaching the politics of policymaking through institutions
face two challenges
▶ First, the breadths of political actors and institutions
way too great
▶ Second, the diversity of student backgrounds
▶ Hence, we study general principles–lenses through which
we can view the politics of policymaking

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An Example: Climate Change

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An Example: Climate Change

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An Example: Climate Change

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 An Example: Climate Change

▶ Two policy solutions for reducing carbon emissions by

increasing its price
1. Carbon tax: gov’ts impose tax on carbon emissions
2. Cap-and-trade: gov’ts directly (1) cap the level of
carbon emissions and (2) issue permits for
emissions–allowing companies to trade those permits

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 An Example: Climate Change

▶ In terms of tradition policy analysis, carbon tax is better

than cap-and-trade
1. Carbon tax is more flexible
When the demand for carbon is high, cap-and-trade
might impose an inefficiently low level of emissions
2. Carbon tax creates gov’t revenue
Such revenue could be used to solve other problems

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 Group Exercise

Taking the politics of policymaking into account, which policy

would be better? Among carbon tax and cap-and-trade
(suppose that carbon emission permits are given for free),
▶ Which one would be easier to adopt politically in the first
place?
▶ Which one would be easier to sustain once implemented?

Hint: think about winners and losers of those policies

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 Group Exercise
Cap-and-trade is a better policy from a political economy
perspective. Why?
▶ It is easier to adopt politically in the first place
▶ Carbon tax
▶ Winners: the broad public, diffuse and unorganized
interest
▶ Losers: oil and gas companies, highly concentrated and
organized interest
▶ Cap-and-trade
▶ Winners: the broad public and industries that can reduce
emissions cost-effectivley and sell those permits for a
profit
▶ Losers: oil and gas companies, highly concentrated and
organized interest

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 Group Exercise

Cap-and-trade is a better policy from a political economy

perspective. Why?
▶ It is easier to sustain politically
▶ Cap-and-trade
▶ Once permits are issued, they become a valuable
financial asset
▶ A market for such permits will emerge
▶ The following actors will have a stake in the market
▶ Permit owners, brokers, investment bankers, and so forth
▶ They will become an organized interest against oil and
gas companies

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 An Example: Climate Change

▶ To sum up, among carbon tax and cap-and-trade, which

one is better?
▶ From the view of traditional policy analysis, carbon tax
▶ From the view of political economy analysis,
cap-and-trade
▶ In sum, the political economy perspective flips the
standard policy advice on its head
▶ Because it takes into account which policy is politically
more feasible and sustainable

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 Takeaway

▶ Why should we study political economy for public policy?

▶ The making and implementation of public policy is
fundamentally political
▶ Public policy analysis must take into account the
constraints by political institutions
▶ I showed the differences between two perspectives using
an example of policy solutions to climate change

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 Outline

Course Introduction

Why Political Economy for Public Policy?

Why Should We Study Game Theory?

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 Why Should We Study Game Theory?

▶ Why do empirical social scientists need to study game

theory?
▶ Empiricists’ reasons against game theory
1. Models are in most cases not much useful for empirical
research
2. Models are usually built on demonstrably false
assumptions
3. Models are often too complicated and demand too much
time to learn

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 Why Should We Study Game Theory?

▶ Empiricists’ reasons for game theory

1. Models help to discover underlying theoretical
mechanisms of social phenomena
2. All models are wrong, but some models are useful
3. Learning a game-theoretic reasoning helps to grow as
more sophisticated empiricists
▶ An example of the usefulness of game theory

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Puzzle

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Puzzle

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 Puzzle
▶ Why are women poorly represented in the US?

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 Competing Two Hypotheses

▶ Voter discrimination hypothesis

▶ “Women are not tough enough for politics”
▶ “Women don’t make as good leaders as men”
▶ Voters discriminate against female candidates

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 Competing Two Hypotheses

▶ Perception gap hypothesis

▶ Women underestimate their quality
⇒ less likely to run for office
▶ Men overestimate their quality
⇒ more likely to run for office
▶ Hence the perception (about quality) gap between men
and women

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 Group Exercise

Recently, political scientists found the following empirical

facts:
1. Women are underrepresented among elected officials
2. Women and men win at equal rates, conditional on
running for an open seat
3. Women perform better than men once elected

Which empirical facts are consistent with which hypothesis?

(Both, Voter discrimination, Perception gap, None)

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 Group Exercise

Which empirical facts are consistent with the two hypotheses?

1. Women are underrepresented among elected officials
(both)
2. Women and men win at equal rates conditional on
running for an open seat (perception gap)
3. Women perform better than men once elected (none)

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Group Exercise

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 A Model of Perception Gap

Contrary to informal intuition, a model of perception gap

produces different empirical predictions:
▶ Women are underrepresented among elected officials
(both)
▶ Women win at equal rates conditional on running for an
open seat (none)
▶ Instead, the model suggests women win at higher rates
than men conditional on running for an open seat
▶ Women perform better than men once elected
(perception gap)

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 A Model of Perception Gap

▶ Suppose women underestimate their quality and

men overestimate their quality
▶ The pool of women candidates is better than the pool of
men candidates in terms of quality
▶ If voters don’t discriminate, women win at higher rates
than men conditional on running
▶ Because the quality of women candidates are higher than
those of men, they perform better as politicians while in
office

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 A Model of Perception Gap
▶ θ: quality; c: cutoff
▶ Notice that θ̂M < θ̂W by assumption
▶ Hence, higher quality of the female candidate pool

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 A Model of Perception Gap

▶ What does the model do for empiricists?

1. It shows the finding that women win at equal rates does
not support the perception gap hypothesis
2. It also shows that the fact that women perform better
once elected is, in fact, in favor of the perception gap
hypothesis

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 A Model of Perception Gap

▶ Taken together, the model helps empiricists in two ways:

1. Reevaluate the agreement/disagreement between
informal (i.e., non-mathematical) theory and empirical
results
2. Produce new testable hypotheses that were not regarded
relevant before

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 Takeaway

▶ Why should we, as empiricists, study game theory?

1. Models are useful because they help to discover
underlying theoretical mechanisms
2. All models are wrong, but some models are useful
3. Thus, even for empirical social scientists, learning a
game-theoretic reasoning is helpful
▶ I provided an example of the underrepresentation of
women politicians to show the usefulness of a model in
empirical studies

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 Homework

1. Watch Prof. BdM’s lecture on Nash equilibrium Part I

(25 min.)
Click HERE to see the lecture
2. Read PEPP, Appendix A:
▶ Section A.1
▶ Section A.2
▶ Section A.3
▶ Section A.5
▶ Sections A.6.1 and A.6.2

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