The exclusion of legitimate costs

Policy Outcomes  (5.5 page paper)

  1. Construct constitutive and operational definitions for any three (3) of the following actions and outcome variables:

Program expenditure Equality of educational opportunity
Personnel turnover National security
Health services Work incentives
Quality of life Pollution
Satisfaction with municipal services Energy consumption
Income distribution Rapport with clients

  1. Identify three (3) policy problems listed below and determine an appropriate indicator or index that would help determine whether each of the identified problems are being solved through government action. Justify your position on each.

Work alienation School dropouts
Crime Poverty
Energy crisis Fiscal crisis
Inflation Racial discrimination

  1. Construct valid rebuttals to the following argument using at least four (4) threats to validity: (B) The greater the cost of an alternative, the less likely it is that the alternative will be pursued. (W) The enforcement of the maximum speed limit of 55 mph increases the costs of exceeding the speed limit. (I) The mileage death rate fell from 4.3 to 3.6 deaths per 100 million miles after the implementation of the 55-mph speed limit. (C) The 55-mph speed limit (National Speed Law of 1973) has been definitely successful in saving lives.

  1. Include at least two (2) peer-reviewed references (no more than five [5] years old) from material outside the textbook to support your views

Examples: Threats to the plausibility/validity of claims about the benefits of the 55 mph speed limit.:

Invalidity. A policy prescription is based on an invalid assumption about the causal relation between a policy and its outcomes. For example, debates about the efficacy of the 55 mph speed limit (National Maximum Speed Law of 1973) have focused on the extent to which enforcing a maximum speed on all intercity highways is responsible for the observed decline in traffic fatalities after 1973. The claim that the new maximum speed (55 mph) was responsible for the decline of 9,800 fatalities between 1973 and 1975 has been challenged on grounds that the decline was due to the new compressed range or standard deviation of speeds; improvements in automobile and highway safety; the interaction of maximum speed with population density; and the effects of recession, unemployment, and declining gasoline prices on miles driven and, consequently, fatality rates.35

■Inefficiency. Estimates of the net efficiency benefits of the 55 mph speed limit vary markedly, depending on the value attached to human lives and the costs of time lost by driving at 55 mph rather than 65 mph. One estimate of net efficiency benefits is $2.3 billion; another is minus $3.4 billion.36

■Ineffectiveness. Estimates of the cost-effectiveness of the 55 mph speed limit also vary markedly. The costs per fatality averted range from approximately $1,300 to $21,000, depending on assumptions about what should be included as costs and benefits.37

■Exclusion. The exclusion of legitimate costs and benefits will produce implausibly high or low net efficiency benefits. For example, costs of time lost by driving at 55 mph or benefits in the form of the monetary value of human lives may be excluded.

■Unresponsiveness. The costs of time and other resources are often based on assumptions that individuals would be willing to pay the average wage rate to engage in a time-saving activity. The average wage rate is typically unresponsive to the price individuals are actually willing to pay. For example, approximately half of drivers are engaged in recreational activities, not commerce or business. The average wage rate, which markedly increases the estimated costs of the 55 mph speed limit, is therefore unresponsive to the perceived costs of driving at 55 mph.

■Illegality. In some cases, the legality of a prescription may be challenged. It is not appropriate to count as costs (or benefits) income earned through illegality, fraud, or unlawful discrimination. In cases involving the comparable worth of jobs held by men, women, and minorities, illegality is a major factor. In the case of the 55 mph speed limit, it is not.

■Unfeasibility. Policy prescriptions can be challenged on grounds that they are not feasible because of political, budgetary, and administrative constraints. The implementation of the 55 mph speed limit varies across states because of differing capacities for implementing or enforcing speed laws. Implementation capacity is generally greater in states with high population density.

■Inequity. Prescriptions may be challenged on ethical grounds involving alternative conceptions of social equity and justice. The group that pays a disproportionately high cost in terms of lives lost is younger drivers. The median age of victims of traffic fatalities is approximately thirty years, which means that half of traffic deaths occur in those below thirty. The Rawlsian conception of fairness—that is, those worst off should benefit—may be used to challenge policies designed to reduce fatalities through speeding laws rather than through educational and driver training programs that target younger drivers.38

■Inappropriateness. Prescriptions based on estimates of the value of human lives sometimes employ discounted lifetime earnings as a measure of value. Efforts to establish the cost (discounted or undiscounted) of a human life may be challenged on grounds that it is inappropriate to calculate a price for human lives, which are not commodities on an open market.39

■Misformulation. A standing challenge to prescriptions based on cost-benefit analysis is that the problem has been misformulated. In the case of the 55 mph speed limit, saving fuel during the oil crisis of 1970–73 was the original problem for which the National Maximum Speed Law was a prescribed solution. The definition of the problem shifted to averting fatalities after the oil crisis passed. The existing formulation of the problem (averting traffic fatalities) may be challenged on grounds that the problem should be formulated as one of saving a nonrenewable resource; mitigating the emission of pollutants; and averting fatalities by a significant increase in taxes on gasoline, which in constant dollars costs less per gallon in 1990 than in 1974.

These threats to the plausibility of policy prescriptions do not apply solely to cost-benefit and cost-effectiveness analyses. Because all policy prescriptions are based on causal as well as ethical premises, these threats to plausibility are relevant to almost any policy that seeks to achieve reforms through the regulation, allocation, or reallocation of scarce resources.40

The policy-analytic method of prescription involves many uncertainties. One of these has to do with the role of values and ethics in policy analysis. The purpose of a policy prescription is not simply to forecast or predict some future outcome or to monitor its past or present effects—but to advocate a course of action whose likely consequences are valuable because they are right in and of themselves, or because they promote justice, equality, efficiency, democracy, liberty, or securiy. However, there are practically significant difficulties in using economic theory and the tools of economic analysis to justify such claims about what is valuable for members of a community. For this reason, uncertainties about values may be treated as a matter for reasoned ethical argument and debate.

A closely related source of uncertainty stems from incomplete knowledge about the effects of policies. Even if there were a consensus on important social, economic, and political values, we still would not know which policies work best under different conditions. Some of this uncertainty is a result of incomplete information about the range of costs and benefits that should be considered in a reasonably thorough analysis. Another important source of uncertainty stems from measures of varying reliability and validity and fallible judgments about shadow prices and discount rates.


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