Ethics and Values

in Public Policy

Mark Carl Rom

How Should We Decide? Utilitarianism, deontology, casuistry Market, politics, authority

Mark Carl Rom

Making Public Policy How should we decide how to decide what

our policies should be?We can let people choose for themselves

(markets)We can have the public choose for everyone

(democracy)We can have leaders decide for everyone

(authority)

Mark Carl Rom

Which is Better? When should we use

Markets?Democracy?Authority?

All have advantages/disadvantages No one form dominates the others

Mark Carl Rom

Steps in Policy Choice Step 1: Is there a problem? What is it?

Step 1A: If “No”• No explicit policy• Citizens may choose whatever actions they like,

subject to existing policies• Example: Marriage? Child bearing? Child rearing?

Step 1B: If “Yes”, then go to Step 2

Mark Carl Rom

Steps in Policy Choice Step 2: Should we decide collectively or

individually?Policy choice: This is a individual decision

problem; go to Step 1A (leave it to individual choice)

Policy choice: This is a collective decision problem; go to Step 3

Mark Carl Rom

Steps in Policy Choice Step 3: How should we choose the policy?

Step 3A: Policy selected through democratic choice (voting).

Step 3B: Policy delegated to authorities (who might be experts).

Mark Carl Rom

Types of Decisions Two main questions:

Does the outcome of the decision affect only my welfare, or the welfare of others?• Private outcomes: my welfare only• Public outcomes: others’ welfare

Is the decision made me alone, or by the group as a whole?• Individual decisions: made individually• Collective decisions: made by the group

Mark Carl Rom

Types of Policy Decisions Individual

DecisionCollective Decision

Private Outcome Liberty of the individual! Consequence: individual satisfaction.

Leave it to the market!

Tyranny of the majority:Consequence: theft of rights!

Politics may hurt the public!

Public Outcome Tyranny of the minority:Consequence: Few positive externalities; many negative ones.

The market may hurt the public!

Liberty of the group!Consequence: social welfare.

Leave it to the politics!

Mark Carl Rom

Collective Decisions What kind of issues should trigger

collective decisions? What kind of issues should trigger

individual decisions? Hard cases…

What decisions truly only affect the individuals who make them?

What decisions truly affect the public?

Mark Carl Rom

Private-Public Decisions What actions should trigger collective

decisions? If individual decisions cause:Material harmsElevated risk of harmAmenity harmsEmotional or psychological harmsSpiritual or moral harms

Mark Carl Rom

Public-Private Decisions What actions should trigger collective

decisions? If individual decisions cause: Structural harms (damage to organizations or

communities)Accumulative harms (actions that damage

only if enough people do them)Harms to a community or society if individuals

fail to take action So….what actions do NOT affect others?

Mark Carl Rom

The Three Conflicts

Markets

Experts Politics

EfficiencyEquity

Institutional Reform

Mark Carl Rom

How do experts decide? Professional training: Typically focuses on

Efficiency (economists) Equity (political scientists) Rights (lawyers)

“Expert failure” Cognitive limits Cognitive impairments Uncertainty Value conflicts Preferences Power

Mark Carl Rom

How do politics decide? Goal: To learn the “Will of the People” Process: Voting

Plurality Majority Unanimity Proportional representation Borda counting Approval counting Optimal majority rule

Different procedures will lead to different outcomes

Mark Carl Rom

Criteria for “Good” Voting Systems http://en.wikipedia.org/wiki/

Voting_system But…no voting rule satisfies all criteria!

Mark Carl Rom

Who Should Win?

BetterA

C

B

8

B

C

A

7

C

B

A

6

Number of Voters in Group

Mark Carl Rom

Policy: The Federalism ‘Game’

Mark Carl Rom

How do Markets Decide? Markets: a set of institutions for reducing

transaction costs in exchange of goods and services

Preconditions: diverse preferences, diverse endowments, economies of scale, specialization

Benefits: gains from trade, gains in productive efficiency, prices convey information

Mark Carl Rom

Markets are efficient Under perfect competition (PC)

Perfect and free informationPrice takingPrivate decisionsPrivate goods

Market failures: when PC does not exist, experts MAY improve efficiency

Mark Carl Rom

Market Failure Three main types of market failures

1. Markets fail if governments remove, or fail to create, the ´infrastructure´ of market processes• Property rights, legal system

2. Markets fail if governments create, or fail to remove, impediments to market processes• Taxes, subsidies

3. Markets fail to perform efficiently because of inherent violations of the goal of Pareto optimality• Informational asymmetries, externalities, economies of scale

Mark Carl Rom

Markets v. Politics The contest between efficiency and equity

There is (no) agreement about what is efficient meansThere is no agreement about what is equitable

• Equal shares (Rawls)• Equal needs (Marx)• Equal contributions (Smith)

Equity and efficiency: conflict or compatibleTradeoffs?More of both?

Mark Carl Rom

Politics vs. Markets Do markets or politics best ensures

legitimate rewards to individual effort, consistent with preserving rights of others?Markets handle allocation efficientlyPolitics in a democracy will be redirected

towards redistributionExperts do not agree about what to do

Mark Carl Rom

Experts v. Politics Preferences x Institutions = Outcomes

If preferences change, and institutions remain constant, outcomes will change

If institutions change, and preferences remain constant, outcomes will change

Political actors focus on outcomes, and seek to manipulate either preferences or institutions

Experts do not agree what outcomes, or institutions, are preferable

Mark Carl Rom

Tensions Markets and Politics

Equity Policies• Income (re)distribution• Resource allocation• Externality control

Theory: Individual vs. collective decisions. Practice: Who actually has power in markets

and politics?

Mark Carl Rom

Tensions Markets and Experts

Efficiency Policies• Market structure• Externality control• Public goods• Information asymmetry

Theory: Potential for enhancing efficiency Practice: What are real motives and insights of

both?

Mark Carl Rom

Tensions Politics and Experts

Institutional Reform Policies• Institutional design• Values (equity and efficiency)• Information

Theory: Both work for “public interest” Practice: Politicians reluctant, experts

ignorant

Mark Carl Rom

How Should We Decide? Utilitarianism, deontology, casuistry Market, politics, experts