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PP 7
• Try Sensitivity Analysis
• Which uncertainties are the most important, in
the sense that relatively small changes in what
you believe would cause you to change your mind
about how desirable some alternative might be?
By a process known as sensitivity analysis, you
can discover these most important uncertainties.
The procedures are somewhat technical but the
intuition behind them is simple.
• Consider the several assumptions you have
made on the way to your conclusion and
suppose that each of them is somewhat
mistaken. Now ask yourself: “How big a
mistake can I afford in this assumption before
this analysis is in really big trouble?” The
smaller the affordable mistake, the more
sensitive is your analysis to the particular
assumption.
• Confront the Optimism Problem
• how do you guard against excessive optimism?
• Scenario writing. What scenarios might cause the
proposal to fail to produce the desired outcome—that
is, solving or sufficiently mitigating the policy
problems? You should have a good chance of thinking
of the most dangerous possibilities. In particular, think
about the dangers of the implementation process,
political and otherwise. Scenario writing also benefits
from thinking about possible failures from a vantage
point in the future looking backward. Consider the
following scenarios:
• A successful state program designed to furnish
technical assistance to extremely poor rural counties
will have added a mandate to aid many not-so-poor
urban counties, with the result that scarce program
resources will have been dissipated and squandered.
• • A program that subsidizes research and development
of “fish protein concentrate,” intended as a cheap and
nutritious food additive, is launched with great fanfare.
Five years from now it will have been stalled,
permanently, by the U.S. Food and Drug
Administration, which will not have been able to
assimilate this product into its standard operating
procedures for regulatory review.
• Undesirable side effects
• Here are some common undesirable but
foreseeable side effects in public programs:
• • Moral hazard increases. That is, your policy
has the effect of insulating people from the
consequences of their actions. For example,
increasing the size of unemployment benefits
has the side effect of blunting the incentives to
search for a replacement job.
• • Reasonable regulation drifts toward overregulation,
especially if the costs of overregulation are not
perceptible to those who bear them. One possible
adverse result of setting health or safety standards
“too high” and enforcing them “too uniformly” is that
you increase private-sector costs beyond some optimal
level. For instance, given most people’s preferences for
safety, imposing auto bumper standards that cost some
$25 per vehicle, but have only trivial effects on
improving vehicle crashworthiness, would not pass a
conventional benefit-cost test.
• A second adverse result of overregulation
might be that you inadvertently cause a shift
away from the regulated activity into some
other activity that—perversely—is less safe or
less healthful. For instance, some observers
argue that overregulating the safety features
of nuclear power production has caused a
shift toward coal, which they argue is much
more hazardous than nuclear power.
• Rent-seekers—that is, interests looking out for
profitable niches protected from full
competition—distort the program to serve
their own interests. It is not inevitable that
suppliers of goods and services to the
government, including civil servants, will find
ways to capture “rents,” but it often happens
• The ethical costs of optimism
• The ethical policy analyst always poses the
question, “If people actually were to follow
my advice, what might be the costs of my
having been wrong, and who would have to
bear them?”
• The Emergent-Features Problem
• Policy often intervenes in systems of some
complexity, systems populated by actors who
adapt to your interventions in surprising ways
and whose adaptations lead other actors to
create still further adaptations. Surprising
behavior may emerge from such dynamics.
How can you take such possibilities into
account when you make your projections?
• Imagine yourself in the other guy’s shoes. Say
to yourself: “If I were X, how would I act?”
And then proceed to crawl into X’s mind and
play out, in your own mind, what X might do.
Do this systematically for each of the
important stakeholders or other affected
parties. The value of this exercise is that you
will discover them to be adapting in surprising
ways to the new policy situation you may be
creating.
• Construct an Outcomes Matrix
• The step of projecting outcomes leads you into a dense
thicket of information. At some point along the way,
you will probably need to stand back and assess
complex and uncertain scenarios for perhaps two to
five basic alternatives, combined with their principal
variants. A convenient way to get an overview of all
this information is to display it in an outcomes matrix.
The typical outcomes matrix format arrays your policy
alternatives down the rows and your evaluative criteria
across the columns. Each cell contains the projected
outcome of the row alternative as assessed by
reference to the column criterion.
Pp 7

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Pp 7

  • 2. • Try Sensitivity Analysis • Which uncertainties are the most important, in the sense that relatively small changes in what you believe would cause you to change your mind about how desirable some alternative might be? By a process known as sensitivity analysis, you can discover these most important uncertainties. The procedures are somewhat technical but the intuition behind them is simple.
  • 3. • Consider the several assumptions you have made on the way to your conclusion and suppose that each of them is somewhat mistaken. Now ask yourself: “How big a mistake can I afford in this assumption before this analysis is in really big trouble?” The smaller the affordable mistake, the more sensitive is your analysis to the particular assumption.
  • 4. • Confront the Optimism Problem • how do you guard against excessive optimism? • Scenario writing. What scenarios might cause the proposal to fail to produce the desired outcome—that is, solving or sufficiently mitigating the policy problems? You should have a good chance of thinking of the most dangerous possibilities. In particular, think about the dangers of the implementation process, political and otherwise. Scenario writing also benefits from thinking about possible failures from a vantage point in the future looking backward. Consider the following scenarios:
  • 5. • A successful state program designed to furnish technical assistance to extremely poor rural counties will have added a mandate to aid many not-so-poor urban counties, with the result that scarce program resources will have been dissipated and squandered. • • A program that subsidizes research and development of “fish protein concentrate,” intended as a cheap and nutritious food additive, is launched with great fanfare. Five years from now it will have been stalled, permanently, by the U.S. Food and Drug Administration, which will not have been able to assimilate this product into its standard operating procedures for regulatory review.
  • 6. • Undesirable side effects • Here are some common undesirable but foreseeable side effects in public programs: • • Moral hazard increases. That is, your policy has the effect of insulating people from the consequences of their actions. For example, increasing the size of unemployment benefits has the side effect of blunting the incentives to search for a replacement job.
  • 7. • • Reasonable regulation drifts toward overregulation, especially if the costs of overregulation are not perceptible to those who bear them. One possible adverse result of setting health or safety standards “too high” and enforcing them “too uniformly” is that you increase private-sector costs beyond some optimal level. For instance, given most people’s preferences for safety, imposing auto bumper standards that cost some $25 per vehicle, but have only trivial effects on improving vehicle crashworthiness, would not pass a conventional benefit-cost test.
  • 8. • A second adverse result of overregulation might be that you inadvertently cause a shift away from the regulated activity into some other activity that—perversely—is less safe or less healthful. For instance, some observers argue that overregulating the safety features of nuclear power production has caused a shift toward coal, which they argue is much more hazardous than nuclear power.
  • 9. • Rent-seekers—that is, interests looking out for profitable niches protected from full competition—distort the program to serve their own interests. It is not inevitable that suppliers of goods and services to the government, including civil servants, will find ways to capture “rents,” but it often happens
  • 10. • The ethical costs of optimism • The ethical policy analyst always poses the question, “If people actually were to follow my advice, what might be the costs of my having been wrong, and who would have to bear them?”
  • 11. • The Emergent-Features Problem • Policy often intervenes in systems of some complexity, systems populated by actors who adapt to your interventions in surprising ways and whose adaptations lead other actors to create still further adaptations. Surprising behavior may emerge from such dynamics. How can you take such possibilities into account when you make your projections?
  • 12. • Imagine yourself in the other guy’s shoes. Say to yourself: “If I were X, how would I act?” And then proceed to crawl into X’s mind and play out, in your own mind, what X might do. Do this systematically for each of the important stakeholders or other affected parties. The value of this exercise is that you will discover them to be adapting in surprising ways to the new policy situation you may be creating.
  • 13. • Construct an Outcomes Matrix • The step of projecting outcomes leads you into a dense thicket of information. At some point along the way, you will probably need to stand back and assess complex and uncertain scenarios for perhaps two to five basic alternatives, combined with their principal variants. A convenient way to get an overview of all this information is to display it in an outcomes matrix. The typical outcomes matrix format arrays your policy alternatives down the rows and your evaluative criteria across the columns. Each cell contains the projected outcome of the row alternative as assessed by reference to the column criterion.