Trade-Offs Are Everywhere...

Today in class we discussed the first chapter of Harold Winter's Trade-Offs, which explains how economists evaluate social policy. The three step process is as follows:

1. Identify theoretical trade-offs, in other words, what are the cost and benefits of the policy?
2. Empirically measure the costs and benefits, and
3. Recommend policy

As a motivating example, I asked the students in the class what would be the costs and benefits of having a death penalty (which was a bit disconcerting--benefits of the death penalty?). However, this was designed to get the students into EconoMode and ignore any moral implications of said policy. I like to think that appropriate economic analysis of policy requires one to be somewhat detached from the issues at hand (e.g. the value of life estimates after 9/11 come to mind). The students came up with a fairly long list of costs and benefits and saw first hand how these issues are examined.

We then talked about what is the objective of policy. In this course we are concerned with social welfare maximization. In plain English, we put a dollar value on the benefits and costs and choose the policy with the largest spread between the two.

This brings up an interesting issue: what is the appropriate social welfare function? Is making the pie as large as possible the best objective? What about the policy preferences of a dictator? The point is that this exercise is a subjective one, and that a lot of debates about policy are amongst people who have different welfare functions in mind (e.g. death penalty opponents who value life above all else). This is not to say that any one particular welfare function is correct, but that the one we will use is social welfare maximization.

Finally, we discussed trade-offs in social policy, i.e. the idea that there are no perfect solutions and that any proposed policy will have costs and benefits.

Questions for discussion:

1. Are individuals who leave from relatively restrictive governments revealing a preference for a particular social welfare function? For example, more people leave Cuba for the United States than vice-versa. Does this reveal a preference for the type of policy making occurring in the Unites States versus the type of policy making occurring in Cuba? Discuss.
   
2. Suppose an automobile that was perfectly non-polluting was introduced to the market. Would this be beneficial for the environment? Discuss.
3. Assume we have taken the three steps in evaluating policy and have made a recommendation. Does this mean (from a public choice perspective) that there are no further issues involved? Discuss.

Welcome to EconoBlogging at Ohio University!

Today was the first day of my new EconoBlogging course here at Ohio University. A little background to get everyone up to speed...

I recently was awarded a University Professorship, which is a University-wide award for teaching excellence as determined by students. Every University Professor gets the opportunity to teach the "course of their dreams" and I thought a course that examined the many different economics blogs would be interesting.

We will initially take a look at a recent book by my colleague Harold Winter entitled Trade-Offs: An Introduction to Economic Reasoning and Social Issues. This is one of the best introductions to the so-called "economic way of thinking" I have encountered and has also been favorably reviewed by bloggers.

I also mentioned to students that one of my main fields of expertise in graduate school at Florida State University was Public Choice (click here for an accessible introduction). I studied under the fine tutelage of Randy Holcombe and Bruce Benson, so I have a fairly good understanding of the issues involved. I also happen to think that examining the political economy of issues can be illuminating in its own right.

I hope that everyone finds the course interesting and that those of you who are not enrolled find it equally interesting as well. Comments will be open and I encourage the fruitful exchange of ideas.