Public Interest Regulatory Analysis Jerry Ellig Senior Research Fellow
Tonight’s issues <ul><li>What is the “public interest”? </li></ul><ul><li>Knowledge: How can policymakers identify the pub...
Key economic insights <ul><li>Knowledge, abilities, talents dispersed </li></ul><ul><li>People gain from exchange </li></u...
Economic analysis of government <ul><li>Collective, rather than individual, decisions </li></ul><ul><li>Collective decisio...
1.  What  is  “the public interest”? <ul><li>“Basically, it covers just about everything.” </li></ul><ul><li>-- Sen. Clare...
Defining “public interest” requires value judgments <ul><li>Utilitarian </li></ul><ul><ul><li>Social welfare maximization ...
Consensus on values? <ul><li>Economic and consumer protection regulation </li></ul><ul><li>Environment </li></ul><ul><li>H...
2.  Imperfect processes for identifying the public interest <ul><li>Public interest = whatever the government did? </li></...
Public interest = what the govt. did <ul><li>“…  plaintiffs’ proposed final judgment is the collective work product of sen...
The despot’s dilemma <ul><li>Knowledge (of desires, abilities, circumstances, etc.) is </li></ul><ul><li>Dispersed </li></...
Revelation through voting <ul><li>Cyclical majorities </li></ul><ul><li>Agenda manipulation </li></ul><ul><li>Nonvoting an...
Cyclical majority <ul><li>1. Spending cuts without tax cuts </li></ul><ul><li>2. Spending cuts with tax cuts </li></ul><ul...
Experts aided by “notice and comment” <ul><li>Organization costs exclude some affected parties </li></ul><ul><li>Rational ...
3.  Incentives and the public interest <ul><li>Wealth transfers and “rent-seeking” </li></ul><ul><li>Concentrated benefits...
4.  Public interest comments mitigate these problems <ul><li>Public  interest (however defined) often under-represented </...
What can public interest regulatory analysis do? <ul><li>Ensure that desired outcomes are defined and measurable </li></ul...
What can’t regulatory analysis do? <ul><li>Determine what tradeoffs are “worth it” </li></ul><ul><li>Furnish an automatic ...
Why does it work? <ul><li>Power of reasoned argument and evidence </li></ul><ul><li>Authoritative voice </li></ul><ul><li>...
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Ellig Public Interest Regulatory Advocacy 2006

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Ellig Public Interest Regulatory Advocacy 2006

  1. 1. Public Interest Regulatory Analysis Jerry Ellig Senior Research Fellow
  2. 2. Tonight’s issues <ul><li>What is the “public interest”? </li></ul><ul><li>Knowledge: How can policymakers identify the public interest? </li></ul><ul><li>Incentives: What incentives do policymakers face? </li></ul><ul><li>What does this imply about how we do public interest analysis and advocacy? </li></ul><ul><li>OK, give me some real examples </li></ul>
  3. 3. Key economic insights <ul><li>Knowledge, abilities, talents dispersed </li></ul><ul><li>People gain from exchange </li></ul><ul><li>Incentives matter </li></ul><ul><li>“Rules of the game” create incentives and </li></ul><ul><li>knowledge flows </li></ul>
  4. 4. Economic analysis of government <ul><li>Collective, rather than individual, decisions </li></ul><ul><li>Collective decisions require exchange between interest groups </li></ul><ul><li>“Rules of the game” create incentives and knowledge flows </li></ul><ul><li>Rules affect outcomes </li></ul>
  5. 5. 1. What is “the public interest”? <ul><li>“Basically, it covers just about everything.” </li></ul><ul><li>-- Sen. Clarence Dill </li></ul>
  6. 6. Defining “public interest” requires value judgments <ul><li>Utilitarian </li></ul><ul><ul><li>Social welfare maximization (economic efficiency) </li></ul></ul><ul><ul><li>Wealth maximization (economic efficiency as best we can measure it in monetary terms) </li></ul></ul><ul><ul><li>Consumer welfare maximization (often requires economic efficiency) </li></ul></ul><ul><li>Rawlsian: Maximize welfare of least well-off? </li></ul><ul><li>Marxian: From each according to his ability, to each according to his need? </li></ul><ul><li>Natural rights: Preserve certain rights/liberties necessary for humans to flourish? </li></ul><ul><li>Contractarian: What rules would people choose if they didn’t know what position they would be in? </li></ul><ul><li>Platonic: Make people virtuous? (Make them behave according to my values) </li></ul>
  7. 7. Consensus on values? <ul><li>Economic and consumer protection regulation </li></ul><ul><li>Environment </li></ul><ul><li>Health/safety </li></ul>
  8. 8. 2. Imperfect processes for identifying the public interest <ul><li>Public interest = whatever the government did? </li></ul><ul><li>Benevolent despot </li></ul><ul><li>Revelation through voting </li></ul><ul><li>Expert agency with notice-and-comment process </li></ul>
  9. 9. Public interest = what the govt. did <ul><li>“… plaintiffs’ proposed final judgment is the collective work product of senior antitrust law enforcement officials of the United States Department of Justice and the attorneys general of 19 states, in conjunction with multiple consultants. These officials are by reason of office obligated and expected to consider – and to act in – the public interest …” </li></ul><ul><li>--Judge Thomas Penfield Jackson, order directing the breakup of Microsoft </li></ul>
  10. 10. The despot’s dilemma <ul><li>Knowledge (of desires, abilities, circumstances, etc.) is </li></ul><ul><li>Dispersed </li></ul><ul><li>Tacit </li></ul><ul><li>Subjective </li></ul><ul><li>Time-dependent </li></ul><ul><li>Often untested </li></ul>
  11. 11. Revelation through voting <ul><li>Cyclical majorities </li></ul><ul><li>Agenda manipulation </li></ul><ul><li>Nonvoting and rational ignorance </li></ul>
  12. 12. Cyclical majority <ul><li>1. Spending cuts without tax cuts </li></ul><ul><li>2. Spending cuts with tax cuts </li></ul><ul><li>3. Tax cuts without spending cuts </li></ul><ul><li>Fiscal conservative favors 1, 2, 3 </li></ul><ul><li>Fiscal liberal favors 3, 1, 2 </li></ul><ul><li>Tax cutter favors 2, 3, 1 </li></ul><ul><li>1 vs. 2: 1 wins … 1 vs. 3: 3 wins … 2 vs. 3: 2 wins! </li></ul>
  13. 13. Experts aided by “notice and comment” <ul><li>Organization costs exclude some affected parties </li></ul><ul><li>Rational ignorance </li></ul><ul><li>Diversity within stakeholder groups </li></ul>
  14. 14. 3. Incentives and the public interest <ul><li>Wealth transfers and “rent-seeking” </li></ul><ul><li>Concentrated benefits and dispersed costs </li></ul><ul><li>The “Prisoners’ Dilemma:” Why skinflints pork-barrel </li></ul><ul><li>Lack of ownership and time horizons </li></ul>
  15. 15. 4. Public interest comments mitigate these problems <ul><li>Public interest (however defined) often under-represented </li></ul><ul><li>Public interest commenters </li></ul><ul><ul><li>Peculiar values (e.g., Mercatus and other nonprofits) </li></ul></ul><ul><ul><li>Political incentives (e.g., federal vs. state agencies) </li></ul></ul><ul><ul><li>Statutory mission (e.g., SBA, FTC) </li></ul></ul>
  16. 16. What can public interest regulatory analysis do? <ul><li>Ensure that desired outcomes are defined and measurable </li></ul><ul><li>Assess proferred benefits and identify unseen/hidden benefits </li></ul><ul><li>Highlight unseen/dispersed costs </li></ul><ul><li>Make tradeoffs explicit </li></ul><ul><li>Identify less restrictive alternatives that can accomplish the policy goal </li></ul>
  17. 17. What can’t regulatory analysis do? <ul><li>Determine what tradeoffs are “worth it” </li></ul><ul><li>Furnish an automatic algorithm for regulatory decisions </li></ul><ul><li>Determine what “should” be done </li></ul>
  18. 18. Why does it work? <ul><li>Power of reasoned argument and evidence </li></ul><ul><li>Authoritative voice </li></ul><ul><li>Potential for embarrassment </li></ul>
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