This document provides an overview of using theories to develop policy advice. It discusses: 1. The key criteria for a good theoretical basis for policy advice is having a valid explanation for how the expected effects of a proposed policy logically follow from an explicitly formulated theory. 2. The steps to take from theory to advice are: 1) identify related phenomena to explain, 2) develop a valid explanation for these phenomena using a theory, 3) derive predictions from the theory for how a proposed policy will achieve its intended effects. 3. A problem with applying theories to real-life problems is overlooking implicit "ceteris paribus" assumptions in the reasoning. To address this, theories should specify under what conditions premises

1. Tutorial 6

2. What have we done?
Problem
(social phenomenon)
Explanation Validity Predictions
- Theory
- Conditions
Advices
Criticize
a Theory
Adequacy Conditions
Empirically
testable
Explanandum follows
logically from explanans
One general law &
one antecedent condition
Empirical content

3. Summary
Lecture 6

4. Summary 1
What are criteria for a good theoretical basis for
developing policy advice.
The most important criterion is that you have a valid
reasoning. That is: you have an adequate explanation
(according to the adequacy conditions) how the
expected effects of the proposed policy logically follow
from an explicitly formulated theory (law + condition). If
there is a trade-off, then try to find an “optimal”
strategy (e.g. busing only in smaller towns, where
people hardly move)

5. Summary 2
Learn what are the steps in coming from theory to advice.
Step 1: Find related phenomena to explain.
Step 2: Develop valid explanations for these
phenomena.
Step 3: Derive from the theory that you use to explain
the phenomena why the proposed policy advice should
have the proposed effects (valid reasoning).

6. Summary 3
Learn what are problems of applying theories to real life
problems.
The most important problem is that you overlook implicit
“ceteris paribus” assumptions in your reasoning that
turn out to not be true.
One way to address this problem is that you try to
develop “deeper” explanations that specify under what
conditions certain premises apply and when they do not
apply.

7. Summary of the summary
When you develop policy advices, be aware of the fact
that theories make implicit ceteris paribus assumptions.
Try to predict what might go wrong and how likely this
might happen and consider this when you give an advice.
If there is a trade-off, then try to find an “optimal”
strategy (e.g. busing only in smaller towns, where people
hardly move)

8. Exercise

9. Task of the exercise
We have a problem
Why is there this problem (use a theory to explain it)
Check validity of the explanation
If valid - Use the same theory to make predictions
Use the predictions to give advice.

10. What is kidnapping???

11. Kidnapping - Explanation
Why do we think a policy has an expected effect?
Because we have a theory (lawlike statement) that
predicts that given the policy is applied (condition) the
expected effect will be obtained (prediction or
explanandum)
Why is there kidnapping?
Let’s go from the very general to a more specific
explanation of our problem

12. Task 1
Use RCT to explain why is there kidnapping?
THEORY - LAWLIKE STATEMENT
CONDITION
___________________________
EXPLANANDUM
(5 min)

13. Keep in mind!
If a social policy does not actively employ the interests
of those on whom it has an impact, it will find those
interests actively employed in directions that defeat its
goals. (J. Coleman)

14. Intro: Rational Criminals?
The higher the perceived utility of a course of action, the
more likely an individual will choose this action
When the benefit of breaking the law (committing a
crime) is greater than the punishment, an individual will
break the law

15. Explanation
The higher the perceived utility of a course of action, the
more likely an individual will choose this action
The lower the costs of kidnapping a person (the higher
the benefits) the more likely an individual will choose
this action
Kidnappers face the punishment (if caught) as the cost of
kidnapping
-----------------------------------------------------------------------------------------------------------------------
The lower the punishment of kidnapping the more likely
kidnappers will kidnap a person.

16. Task 2: Advice
Think about this explanation
If this is explanation, what would it imply for the policy?
WHAT IS YOUR ADVICE? Construct a valid argument
predicting the implication of your advice on the
phenomenon.
(5 min)

17. Advice
The higher the costs of kidnapping a person the more
likely an individual will not choose this action
Increasing the punishment of kidnapping making it
equivalent to murder will increase the costs of kidnapping
a person
-----------------------------------------------------------------------------------------------------------------------
Increasing the punishment of kidnapping to the level of
murder reduces the likelihood of kidnapping.
Advice: Increase the punishments to kidnappers

18. What might have gone
wrong?
In most cases, the family of an abduction victim is willing (if able)
to pay any ransom required - hoping the relative will be released
as a result. But, will the kidnapper release her? Should he? On
the one hand, the victim may have seen him, she may have some
information about the place where she had been hidden, or she
simply may know those little details that help to trace the
kidnapper. On the other hand, killing the victim will typically spur
a more intensive investigation (as in increasing the number of
investigators, the duration of the investigation, or rewards for
helpful hints), and in case the kidnapper is caught and
sentenced, he will experience a harsher punishment, probably
without parole.

19. Task 3: Ceteris Paribus
Implicit Assumptions???
It is assumed that there are no other consequences of
increasing punishments to kidnappers
The advice is valid BUT the policy does not have the
expected effects
(5 min)

20. Ceteris Paribus Problems
Kidnappers always return the victim after the ransom is
paid.
However, if the punishment is equivalent between
kidnapping and murder kidnappers will have incentives to
kill their victims.
We cannot guarantee a better societal outcome!
How else can we increase the cost (or reduce the benefit)
of kidnapping?

21. Outcome
Individuals who choose to kidnap face an equal
punishment by keeping their victims dead or alive
Keeping a victim alive brings a higher cost to the
kidnapper (increased probability of being caught)
-----------------------------------------------------------------------------------------------------------------------
Increasing the punishment of kidnapping to the level of
murder reduces the likelihood of kidnapping. (YES)
Increasing the punishment of kidnapping to the level of
murder increases the likelihood that kidnappers will
murder their victims. (YES)
Advice: Increase the punishments to kidnappers equivalent to murder

22. Task 4: Other advices?
How else can we increase the cost (or reduce the benefit) of kidnapping?
If there is a trade-off, then try to find an “optimal” strategy
(10 min)
Give other explanations and advices.

23. Some explanations

24. Explanation
The higher the perceived utility of a course of action, the
more likely an individual will choose this action
The higher the benefits of kidnapping a person (the
lower the costs) the more likely an individual will choose
this action
Kidnappers receive monetary ransoms for their
kidnapped victims
-----------------------------------------------------------------------------------------------------------------------
The higher the ransom a kidnapper can receive the the
more likely he/she will kidnap a person.

25. Advice
The lower the benefit of kidnapping a person the more
likely an individual will not choose this action
Punishing the payment of ransoms to kidnappers reduces
the benefit of kidnapping a person
-----------------------------------------------------------------------------------------------------------------------
Punishing the payment of ransoms reduces the likelihood
of kidnapping.
Advice: Make it illegal to pay ransoms to kidnappers

26. Explanation
The higher the perceived utility of a course of action, the
more likely an individual will choose this action
The lower the costs of kidnapping a person the more
likely an individual will choose this action
The lower the probability of being arrested for
kidnapping the lower the (expected) cost to a kidnapper
-----------------------------------------------------------------------------------------------------------------------
The lower the probability of being arrested for kidnapping
the more likely a kidnapping will take place

27. Advice
The higher the probability of being arrested for
kidnapping the more likely a kidnapping will not take
place
Increasing investments in police force increases the
probability of being arrested for kidnapping
-----------------------------------------------------------------------------------------------------------------------
Increasing investments in police force increases the
probability that a kidnapping will not take place
Advice: Invest a higher portion of resources to strengthen the
police force

28. Combined advice
Increasing punishment reduces the likelihood of
kidnappings
Punishment must have an upper limit (not too high to
lead to other worse crimes)
Punishing the payment of ransoms reduces the likelihood
of kidnappings
Increasing the investment in police force will reduce the
likelihood of kidnappings.

29. Demographic
Decisions

30. The Problem
In rich countries the average age at which women have
their first child is now 28, compared with 24 in 1970.
A growing number of women are forsaking motherhood
altogether.
Of those born in 1965, 18% are childless (with large
variations from country to country)
Portugal 4%
Italy 20%
Some of these women may not have been able to have
a family, but most will have chosen not to.

31. The Decisions
The decision to have a child is one of the most important
decisions that couples take together.
The decision to terminate childbearing is equally so.
Women in developing countries today are both
having fewer number of children and using an
unprecedented level of permanent methods of
contraception such as sterilization.
Real options and demographic decisions.
(Iyer and Valu, 2006)

32. Task 5
We have a problem: What is the problem?
Why is there this problem (use a theory to explain it)
Check validity of the explanation (star test)
If valid - Use the same theory to make predictions
Use the predictions to give advice.
(10 min)

33. Research Questions
Why are women having fewer children and using
permanent contraception at a much earlier age than
their mothers or grandmothers before them?
What determines their decision making?
Real options and demographic decisions.
(Iyer and Valu, 2006)
Is there a value in waiting to have a child, which may arise as a
response to the influence of uncertainty?

34. Theory - Real Options
Bearing a child is an investment decision
The presence of uncertainty affects the decision about
when to have a child.
The investment decision displays irreversibility and
flexibility.
Irreversibility: Once you use the option you cannot go
back - You cannot return the baby to the factory
Flexibility: There is a period of time in which the option
is available - (re)productive years of the woman

35. Explanation
RCT argues that men and women evaluate the cost and benefits
of childbearing in a net present value framework taking into
account economic factors such as the contributions to current
and future income that children may make, but also the
phycological and societal benefits of having children (Becker,
1981; Schultz, 1998; Dasgupta, 2000).
The woman has the option to wait at each decision point in
her reproductive life-span: this is the marginal benefit of
keeping open the decision to have a child, versus the
alternative either to delay or to stop childbearing.

36. Explanation
3.2. A real options model for the decision to have a child
In a demographic context, let us define C8
as the costs of children and R as the
benefits.9
Let the future benefits and costs be discounted at a positive rate r N0, the
opportunity cost of parental time specified exogenously. Then the net benefits of children
(let us call this B) are:
B ¼ R À C
t0 t*
Unmarried Ability to have children
t1= first child tn= permanent
contraception
G1 = option to wait
t2= second child
G2, G3,…Gn = option to wait
Fig. 2. The fertility decision.
S. Iyer, C. Velu / Journal of Development Economics 80 (2006) 39–58 47
There is a value in waiting to have the next child
delaying the next child in order to see wether, and how, the
uncertainty surrounding the benefits of having the next child
evolves
delaying the current cost of the investment to have the child.

37. Task 6: Complement
Read in your group the article: Baby blues. A juggler’s
guide to having it all (The Economist)
What is the problem that needs to be solved?
What is the advice?
How has the advice been defended? In other words,
what are the premises of the advice?
Is the advice adequate?
Might there be problems with hidden ceteris paribus
assumptions?
(10 min)

38. See you next week