4 Types of Policies
Who Benefits From…
Why do politicians have to
make a choice?

Scarcity forces us to choose

Unlimited wants > limited
resources

Not making a choice is itself a
choice

Based on perceptions of
expected costs and benefits of
alternatives

Factors driving choices can be
material, behavioral, moral, or
some combination of all three.
WHY ARE YOU IN THIS CLASS
RIGHT NOW?
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Application of Opportunity Costs
Cost / Benefit Analysis
It’s the best of your alternatives
Your decision might change if………
Scarcity

How then are these UNLIMITED wants
satisfied by LIMITED resources?
A Price Must Be Paid…EVERYTHING HAS A
PRICE!!!!!
 This is how it is decided who receives the resources
that they want

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Which brings us to our next point…
TANSTAA“F”L
There Ain’t No Such Thing As A
“FREE” Lunch

NOTHING ON THIS EARTH IS FREE!!!!!
EVERYTHING HAS A PRICE…
Costs and Benefits

Cost: Any burden that a group must bear (monetary or
non-monetary)

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Widely distributed (income tax, social security)
Narrowly concentrated (factory emission stand., taxes on
wealthy, gun control)
Benefit: Any satisfaction that a group will enjoy


Widely distributed (national security, federal highways)
Narrowly concentrated (farm/dairy subsidies)
3 Economic Reasoning Principles

People choose, and gov’t choices are the
source of social outcomes.(#1)

ALL CHOICES INVOLVE COSTS (#2)
(people receive benefits and incur costs when gov’t
make decisions)

PEOPLE RESPOND TO INCENTIVES IN
PREDICTABLE WAYS. (#3)
(Choices are influenced by incentives, the rewards that encourage and the punishments
that discourage actions. When incentives change, behavior changes in predictable
ways.)
Majoritarian Policies

Involve widely distributed costs and widely
distributed benefits (Social Security, National
Defense

Analysis
Usually not dominated by interest groups; everyone
benefits; interest groups benefit anyway
 When policy is adopted that everyone likes, debate
ends (becomes “sacred cow” that can’t be touched)

Interest Group Policies

Involve narrowly concentrated costs and
narrowly concentrated benefits (tariffs/taxes,
de-regulation of business, abortion restrictions)

Analysis

These tend to be fought over by int. groups:
potential costs and benefits are great enough to
devote resources/participation
Client Policies


Involve widely distributed costs and narrowly
concentrated benefits (farm subsidies, pork
barrel bills that use tax money)
Analysis:
Strong incentive for interest groups to participate.
 Costs are widely distributed; small cost; payers
unaware they are paying
 Since interest groups benefit so much, they are a
client of the federal agency (Dept. of agricultue)

Examples of Pork

Kentucky kickback?: $2.2 billion. That's the amount in additional cash authorized for a project
that involved a dam and decades-old locks on a river that flows through Senate Minority Leader
Mitch McConnell's home state of Kentuck

Bridge to somewhere: This one's a lot less controversial than the river project money. Congress
OK'd $450 million for rebuilding projects in flood-struck areas of Colorado.

For decades of service: Frank Lautenberg served in the Senate for almost 30 years. He died in
June of viral pneumonia. This nation owed him a great deal. Congress has almost always
approved a death benefit gift to the family equal to one year's salary, which they provided for
Lautenberg's widow, Bonnie, in the bill. (174,000)

Ssssh, we're getting a big check: There were more agencies that got big money in the bill.
Agencies that fight wildfires could get as much as $636 million, depending on how bad it gets in
the next year. The mine safety department is getting a bump in the fees it can keep, a $1 million
increase to $2.49 million.
Entrepreneurial Policies

Involve narrowly concentrated costs and widely distributed
benefits (consumer product safety, deregulation)

Analysis:

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Strong incentive for payers to participate
Widely distributed benefits doesn’t invite participation
Policies often defeated by interest groups
Despite this, policies are passed by people acting on behalf of
unconcerned (Ralph Nader, Candy Lightner are entrpreneurs)