module 7 recommending preferred policies

8/8/2019 Module 7 Recommending Preferred Policies

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Module 7Module 7

RecommendingRecommending PreferredPreferredPoliciesPoliciesPrinciples ofPrinciples ofBenefitBenefit--Cost AnalysisCost Analysis


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Learning Objectives

Distinguish policy recommendation from othermethods of policy analysis

Describe six criteria used to choose policies Contrast comprehensive rationality and

disjointed incrementalism as models of policymaking

Describe different types of policy rationality List and illustrate steps in conducting

benefit-cost and cost-effectiveness analyses Apply benefit-cost analysis to a case study

of U.S. and European efforts to save lives andgasoline by setting maximum speed limits


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POLICYPERFORMANCE

EXPECTEDOUTCOMES

PREFERREDPOLICIES

OBSERVEDOUTCOMES

ForecastingEvaluation

Monitoring Recommendation

problemstructuring

problem

structuring

POLICYPROBLEMS


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Criteria Used to Choose PoliciesCriteria Used to Choose Policies

AdequacyAdequacy

EfficiencyEfficiency

EffectivenessEffectiveness

EquityEquity

ResponsivenessResponsiveness

AppropriatenessAppropriateness


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Comprehensive RationalityComprehensive RationalityA NaiveA Naive

Model of Policy and ManagementModel of Policy and Management

Agree on a problemAgree on a problem

Identify and rankIdentify and rank objectives List all policy alternativesList all policy alternatives

Forecast outcomesForecast outcomes

Determine utility of outcomesDetermine utility of outcomes Choose the optimal alternativeChoose the optimal alternative


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Partisan Mutual AdjustmentPartisan Mutual AdjustmentAA

More Realistic ModelMore Realistic Model Make policies at the margin of theMake policies at the margin of the

status quostatus quo

Consider a limited set of alternativesConsider a limited set of alternatives

Seek incremental changesSeek incremental changes

Limit the number of outcomesLimit the number of outcomes

considered for each alternativeconsidered for each alternative

AdjustAdjust objectives to policies aftermaking tradeoffs among partisans


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Reconstruct problems when newinformation becomes available

Repeat analysis and evaluation in aseries of sequential chains

Use analysis and evaluation to remedyUse analysis and evaluation to remedyexisting ills, not to cure problems basedexisting ills, not to cure problems basedon preconceived idealson preconceived ideals

Recognize that analysis and evaluationRecognize that analysis and evaluationoccur throughout society in a process thatoccur throughout society in a process thatis disjointed, incremental, and based onis disjointed, incremental, and based onpartisan mutual adjustment (partisan mutual adjustment (Theory ofTheory ofPartisan Mutual Adjustment and DisjointedPartisan Mutual Adjustment and DisjointedIncrementalismIncrementalism))


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Types of Policy RationalityTypes of Policy Rationality

Economic rationalityEconomic rationalitychoose the morechoose the moreefficient of two or more alternativesefficient of two or more alternatives

Technical rationalityTechnical rationalitychoose the morechoose the moreeffective of two or more alternativeseffective of two or more alternatives

LegalLegalchoose the alternative that is more inchoose the alternative that is more inconformity/compliance to rulesconformity/compliance to rules

SocialSocialchoose the alternative that bestchoose the alternative that bestpromotes the institutionalization of socialpromotes the institutionalization of social

values and normsvalues and norms SubstantiveSubstantivechoose the alternative thatchoose the alternative that

is based on the more appropriate form ofis based on the more appropriate form ofrationalityrationality


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Conducting a BenefitConducting a Benefit--Cost AnalysisCost Analysis

Structure the problemStructure the problem Identify alternativesIdentify alternatives Specify objectives and outcomesSpecify objectives and outcomes

Identify target groups and beneficiariesIdentify target groups and beneficiaries List all benefits and costsList all benefits and costs Collect data for analysisCollect data for analysis Discount benefits and costs to present valueDiscount benefits and costs to present value

Select criterion of choiceSelect criterion of choice Compare benefits and costsCompare benefits and costs Make recommendationMake recommendation


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Discounting Benefits and CostsDiscounting Benefits and Costs

Discount rateDiscount rate: The rate at which money can: The rate at which money canbe borrowed, or the rate at which moneybe borrowed, or the rate at which moneyinvested elsewhere will accumulate. A rateinvested elsewhere will accumulate. A rate

of 10 percent (0.10), averaged over a numberof 10 percent (0.10), averaged over a numberof years, is often taken as the discount rate.of years, is often taken as the discount rate.

Discount factorDiscount factor: The factor by which a future: The factor by which a futuresum of money is discounted back to itssum of money is discounted back to itspresent value. The discount factor is thepresent value. The discount factor is thereciprocal of the rate of interestreciprocal of the rate of interest1 / 1+r .1 / 1+r .Example: 1 / 1+ 0.10 = 0.909.Example: 1 / 1+ 0.10 = 0.909.


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Present Value of Benefit Stream ofPresent Value of Benefit Stream of$100 Invested in 2003$100 Invested in 2003CalculatedCalculated

at 10 Percent Discount Rateat 10 Percent Discount Rate

YearYear

FutureFuture

ValueValue

(fv)(fv)

DiscountDiscount

RateRate

(r)(r)

NumberNumber

PeriodsPeriods

(n)(n)

DiscountDiscount

FactorFactor

(df)(df)

PresentPresent

ValueValue

(pv)(pv)20032003 $110.00$110.00 0.100.10 11 1/(1+0.10)1/(1+0.10)

11 ==

0.9090.909

$100.00$100.00

20042004 $121.00$121.00 0.100.10 22 1/(1+0.10)1/(1+0.10)22

= 0.826= 0.826

$100.00$100.00

20052005 $133.10$133.10 0.100.10 33 1/(1+1.0)1/(1+1.0)33

= 0.751= 0.751

$100.00$100.00


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Benefits and Costs of theBenefits and Costs of the55 mph Speed Limit55 mph Speed Limit

COSTSCOSTS

1.1. Hours DrivingHours Driving

H = [1.04V MH = [1.04V M19731973/S/S19741974 VMVM19731973/S/S19731973] x R =] x R =

1.95 billion1.95 billionH = [VMH = [VM19731973/S/S19741974 VMVM19731973/S/S19731973] x R] x R

== 1.72 billion1.72 billion

Value ofHoursValue ofHours

$5.05/hr (average wage) = $9.85 billion$5.05/hr (average wage) = $9.85 billion

$1.67/hr (survey) = $2.89 billion$1.67/hr (survey) = $2.89 billion

d1

d2


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Slide 12

d1 nnn

dunn, 11/16/2004

d2 dunn, 11/16/2004


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2.2. Costs of EnforcementCosts of Enforcement

$.8 million$.8 million

$12 million$12 million

BENEFITSBENEFITS

1.1. Gasoline SavedGasoline Saved

$0.718 cents (price support) = $2,500 billion$0.718 cents (price support) = $2,500 billion

$0.528 cents (market price) = $1,442 million$0.528 cents (market price) = $1,442 million


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2.2. Lives savedLives saved

$1,297.7 million$1,297.7 million


3.3. InjuriesInjuries$942.3 million$942.3 million


4.4. Property damageProperty damage



A Net Benefits = $2,321.2A Net Benefits = $2,321.2 B/C = 1.8B/C = 1.8

B Net Benefits =B Net Benefits = -- $6,462$6,462 B/C = .345B/C = .345


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Questions/Answers on AssignmentsQuestions/Answers on Assignments

Scenario# 1: Students who have been successfulScenario# 1: Students who have been successfulin obtaining points for the assignments 1&2 arein obtaining points for the assignments 1&2 areeligible to work on assignment #3eligible to work on assignment #3

Scenario# 2: Students who have been successfulScenario# 2: Students who have been successfulin obtaining points in ONE assignment canin obtaining points in ONE assignment canchoose either to do assignment #3 or take finalchoose either to do assignment #3 or take final

test.test. Scenario# 3: Students who have NOT obtainedScenario# 3: Students who have NOT obtained

points for the assignments 1&2 MUST take finalpoints for the assignments 1&2 MUST take finaltest. Maximum grade that one might get is 7.test. Maximum grade that one might get is 7.

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