Policy Design

Dr. Anne Marie Brady

Introduction to Policy
October 26, 2020
 Question of the Hour
How is behavioral science being used by the Department of Labor (DOL), the State of
Oregon, and SBST in the policy design of the pilot for changes to unemployment
benefit (UI)?

Policy Objective: Help unemployed individuals return to work more quickly through
changes to the way unemployment insurance benefits are administered.
 Policy Design
• Using behavioral economics to inform policy
design
• Scarcity of resources as policy design prompt
• Strategies to incorporate when designing
alternative policies (Wiemer)
 What is behavioral science
• Behavioral science: research insights about how people make decisions and
act on them, that are then applied to the design of policies and programs
that directly impact their lives.
• Obama administration created a cross-agency group of applied behavioral
scientists, program officials, and policymakers, and tasked them with applying
behavioral science to policy guidance and advice to Federal agencies.
• Focus on 8 policy areas:
– promoting retirement security,
– advancing economic opportunity,
– improving college access and affordability,
– responding to climate change,
– supporting criminal justice reform,
– assisting job seekers,
– helping families get health coverage and stay healthy,
– and improving the effectiveness and efficiency of Federal Government operations
 Behavioral Science Implications
• Nudge: libertarian
paternalism.
• Influences choices but let
people go as they see fit.
• Promote informed choice and
accountability of service
• Use tricks: automatic
enrollment (retirement, organ
donation); framing (gains vs.
losses)
 Heuristics* and Choice
• Patterned elements of choices (rational, but sub-optimal)
• Availability heuristic (recency bias; chasing trends)
• Unrealistic optimism
• Myopia and procrastination (focus on short-term)
• Overconfidence (men worse than women)
• Loss aversion (losses much worse than gains)
• Plastic bags
• Choice architecture. All of our choices have architecture
behind them. Defaults Matter
• Simpler: Complexity can be harmful;
*enabling someone to discover or learn something for themselves
Behavioral Economics and Policy Design
• Sunstein argues that consumer protection cannot be understood
without an appreciation of behavioral economics and the
importance of simplicity.

• The Food Pyramid, the fuel economy label and energy-efficiency

labels are simple nudges, designed to make markets work better
by informing consumers.

• Make clear and simple the benefits and risks by fully, accurately
and effectively disclosing to consumers the risk and benefits with a
product or service. To do this, use plain language; clear format and
design; succinctly explains information to consumer.
Old USDA Food Pyramid
New USDA Food Plate
 Newer Models
• Advanced Market Commitments
• Social Impact Bonds
• Prizes
 A Social Psych/Behavioral Economics
Approach to the Poor
• Scarcity: Why Having Too Little
Means So Much
– By Sendhil Mullainathan and
Eldar Shafir, Times Books, 2013
 Two Dominant Views of Behavior Under
Poverty
• The poor behave rationally (rational choice
model)
– They are poor because they have few productive
resources or bad luck, but their choices are
rational
• The poor behave pathologically (culture of
poverty model)
– They are impatient, don’t plan, and are confused
– The poor are different
– They are poor because they make bad choices
 Decision-making and the Poor
• Psychology says:
– Yes, people become poor because they have few
productive resources or bad luck
– But scarcity then reduces their cognitive bandwidth
—that is, their attention, cognitive ability, and self-
control—and thereby leads them into bad choices
– This makes them fall deeper into poverty (vicious
circle, payday lending, etc)
– They are human!
 Conclusions and Policy Implications
• A new explanation for why the poor appear less
capable: The state of poverty hurts cognitive capacity

• Policies should be created in a way to reduce the

cognitive demands on the poor
– Set up the right default in retirement plans, health insurance,
bank accounts
– Simplify forms, application procedures
– Set up commitment devices
– Reminders
 More Design
• We already started with Behavioral Sciences and
Nudges
• Now look at the:
– Target Populations
– Values distributed by policy
– Rules shaping action (incentives)
– Heresthetics
 Designing policy alternatives
• How should analyst go about designing
alternative policies?
• Formation of policy alternatives can be viewed
as an exercise in institutional design (Wiemer,
1992).
• Wiemer provides a ‘how to’ craft customized
instruments to fit specific contexts.
 Designing policy alternatives
• Wiemer argues that the ‘old’ ‘standard market failure
approach’ to designing policy alternatives does not work.
– It ignores transaction costs, uncertainty, and the limitations on
decision-making skills needed for organizational design.
• INSTEAD Wiemer calls for a different framework, drawing
on concepts from the new economics of organization,
positive political theory and behavioral economics that
offers the ‘how to’ craft alternative policies.
– Key here: the related rules and incentives that govern behavior.
Designing policy alternatives Framework
 Economics of organization: Incentives

• 1. Inducing third-party enforcement through

the creation of value
• 2. Making commitments credible
• 3. Maintaining competition through
tournaments
 Economics of organization
• Third party enforcement: third parties need to be induced to monitor
and reveal information about some activity by creation of a reward.
– Discretion over how employees are rewarded, and the type of technique
used (cash, in-kind).
– For example, anyone who believed that a drug advertisement made claims
not supported by scientific evidence could bring suit against manufacture.
Win in court, get a percentage of the sales of over-promotion. Incentivize
actors to search for such fraud.
• Making commitments credible: policy problems arise when
governments cannot make credible commitments.
• Maintain competition through tournaments: contracting out to
private companies for goods and services can actually dull
competition in service delivery.
 #1 Third Party Enforcement
• As a solution to an agency problem,
monitoring the agent is costly.
• Can someone design institutions that
incentivize someone else to monitor?
 #1 The Bounty Hunter
• Objective: compliance with a workplace safety rule.
• Inspectors: hidden action and must be paid.
• Alternative: Encourage lawsuits targeting violations
by allowing for high damages
• “Private attorney general”
– Bounty hunter is the worker + lawyer duo
• Tradeoffs: Save inspection costs and agency loss,
but might incentivize lawsuits without a real
violation.
 SEC Whistleblower Program
• The Dodd-Frank Act1 amended the Exchange Act by, among other
things, adopting Section 21F,3 entitled “Securities Whistleblower
Incentives and Protection.”
• Section 21F directs the Commission to make monetary awards to
eligible individuals who voluntarily provide original information
that leads to successful Commission enforcement actions resulting
in monetary sanctions over $1 million and successful related
actions. Awards must be made in an amount equal to 10 to 30
percent of the monetary sanctions collected.
• To ensure that whistleblower payments would not diminish the
amount of recovery for victims of securities law violations, Congress
established a separate fund, called the Investor Protection Fund
(Fund), from which eligible whistleblowers are paid.
 #2 Comments on Commitments

• Governments trade-off responsiveness and

credible commitments.
• Democratic responsiveness implies policy
changes in response to voter demands.
• If voters demand responsiveness, then
governments cannot commit to certain
policies.
 Heresthetics

• manipulation of the agendas that govern the structure and

timing of collective choices;
• manipulation of the dimensions of policy choice to form or
upset majorities;
– Military Bases Commission
– Indexing
– Grandfathering
– Sunset Clauses
 Heresthetics (study of political strategy)
• Fixing agendas behind ‘veil of ignorance’: Manipulation of
the agenda: Who sets the agenda determines the design
concepts.
• Automating policy decisions: program stability and credibility
can be increased by taking issues off the political agenda;
program evaluation can force issues onto the agenda.
• Linking policy dimensions: Most common manipulation of
policy dimensions is giving something of value to those who
would otherwise oppose policy.
• Collapsing and unlinking policy dimensions: Sever unrelated
policies.
 Linking Policy Dimensions

Give “something of value to those who would

otherwise oppose a desired policy” (147).
• Link dimensions to compensate losers.
• Link dimensions to create winners.
• Link dimensions to create constituencies
of future winners.
 Behavioral
• 8. Adapting organizational routines
– Existing routines are methods to reach people, not
obstacles.
• 9. Instilling and exploiting norms
– With respect to organizational design, how do processes and
structure contribute to the development of desirable norms.
• 10. Monitoring through reporting and diligence
requirements (more on this in Implementation and
Evaluation classes)
– Use data collection and report to inform program design.
 Instilling & Exploiting Norms

“The general question with respect to

organizational design is how processes and
structure contribute to the development of
desirable norms.” (152)

Internalize compliance.
Social Constructions
 Propositions
• 1. The allocation of benefits and burdens to target groups by
public policy depends on the extent of their political power
as well as their positive or negative social construction.

• 2. Policy designs have both material and symbolic

(reputational or interpretive) effects on target populations
that impact their attitudes and political participation. These
effects occur through structuring of opportunities that shape
life experiences and subtle messages about how government
works and how they are likely to be treated.
• 3. Social constructions emerge from emotional and intuitive reactions
and then are justified with selective attention to evidence.
Policymakers, especially elected politicians, respond to (and exploit)
these emotional and intuitive judgments in their rationales and
selection of policy elements.
• 4. Social constructions of target groups can change, and public policy
design is an important, though certainly not singular, force for change.
The seeds for altering social constructions can often be found in the
unanticipated or unintended consequences of previous policy designs.
• 5. Types and patterns of policy change vary depending on the social
construction and power of target groups.