- The substitution of private choice with public choice

- The process by whcih society makes and enforces decisions on what behavior is acceptable and what is not

- Often binding for the target population, even for those who disagree with it.

- When private behavior does not significantly affect other people, we don't need to collectively decide whether it's good or bad behavior

- When private behavior does affect other people, governemnt sometimes has to step in via public policy.

-E.G. Gun laws.

-Substitutes private choice with public choice

- Awareness of which action is best: communal action or private action

- Ability to modify as we learn what is working and what is not

1. Identify the social goal

2. Diagnose the problem

3. Identify the appropriate institution for action

4. Evaluate the substance and politics of the competing policy options.

5. Implement, enforce, and monitor the policy changes

What is the benefit or elimination of harm that can be achieved through effective public action

(This is a hard step, because people often fundamentally disagree on whether or not there is a benefit or a harm. E.g. Teacher Unions)

What behavior has to change in order to change the stated goal?

(Sometimes clear eg. pollution, sometimes not clear cut, eg. teen pregnancy)

-Who has the authority to change the behavior in a manner that will bring about the desired outcome?

- Choosing a policy that is most likely to be successful and politically acceptable

(This means the best solution is almost NEVER chosen. Politics always plays a heavy role)

Goal: Their revenues generated exceed their costs. No. 1 goal is to make $$$

Profits go to the shareholders if it's a public company, or to the owners if it's a private company. 

The government often contracts out public policy "service delivery" to private firms. (i.e. road building)

Goal: Enhance social welfare by delivering goods and services that are not ordinarily provided by the private sector

Revenues do not have to exceed costs because of contributions

Surplus does not go to owners, it is retained by the organization

Government exercises authority over some jurisdiction (town, state, nation)

Unique power to compel individuals into doing things they might not otherwise do.

(I.e. money to disaster relief. Our taxes, not all of our decision)

Goal: Make sure the treatment produces benefits that are greater than the side effects

Governmental rationing of goods:

1. Scientific uncertainty

2. Human unpredicatability

3. Deliberately hidden information

4. Complexity of life

No two humans are the same, and no two humans can be expected to act just the same. 

Public policy affects hundreds to millions of lives, and the behavior of all of them cannot be known

Sometime public policy must occur with some hidden information beyond the reach of the policy makers.

I.E. September 11 bombings, nuclear actions of North Korea and Iran

No two situations in life are completely the same. Each policy problem is fundamentally new and has new aspects and facets. No matter how much we learn from history, the present will always be different in crucial respects. 

I.E. Great depression versus 2008 crisis

Model of how consumers and producers behave.

First assumption: as the price of a good or service falls, some consumers who would have bought something else, will instead buy the good with the falling price, and others will buy more of the good or service.

Second assumption: As the price of the good or service rises, firms will supply more of it to the market. (Fisherman will fish longer for salmon, if the price of salmon increases).

"All things other being equal":

1. The item of interest can change but everything else remains constant.

2. Fails to take into account the several competing factors that change an outcome.

A theoretical concept that equates roughly to our well-being. Consuming goods, avoiding displeasure, enjoying relationships, beholding things of greater beauty, etc. 

For example, individuals get utility by paying taxes, not because it gives us pleasure, but because it keeps us from jail.

1. Maximized by individuals

2. Not necessarily selfish

3. I not not constant across individuals

The true cost of an item includes what you must give up in order to do or have a particular good or service.

The opportunity cost represents the best investment or spending opportunity that was passed up in order to buy the aforementioned good or service.

Will not voluntarily do things that are unprofitable over the long run.

Profit is a powerful motivator. To change firms actions, you must offer incentives.

E.G. Tax credits to build low income housing

1. Motivate and explain extraordinary behavior.

2. Are a powerful tool in changing behavior

3. Rational individiduals avoid decisions that make them worse off

4. Policies that fail to anticipate how rational individuals and firms will respond can have serious unintended consequences

Human Capital: The notion that individuals make decisions about investments in throe own skill and education in the same way a firm might.

They essentially show us the feasibility of our actions in our given set of circumstances.

Government has the ability to alter the cost of a given activity, whether directly or indirectly.

If jaywalking had a twenty-year sentence, would anyone do it. 

Sin-taxes change behavior

Occurs when individuals or firms that are protected against some kind of loss act with less caution than they would have otherwise. 

People with airbags drive more recklessly than people without them

In the consumer-producer relationship, the market suffers when both parties do not have complete information. "Asymetry of information"

Policies: Lemon laws, food nutritional labels, etc.

When a Principle, i.e. firm that hires an Agent, hires an Agent to complete a specified task and the Agent has an incentive to behave in ways that are not aligned with the goals of the Principle. The Principle also lacks the ability to monitor the agents actions.

I.E. 

Principle Agent problems in Public Policy:

The agents in public policy often have different interests than those of the policy makers. 

Policy makers that allow flexibility and discretion in the hopes of sensible, well-intentioned decisions also open up the doors for abuse. 

1. Branding

2. Signaling

3. Certifications

4. Screening

Process by which individuals or firms undertake activities with no direct value.

I.E. Taking a rigorous exam not because it is relevant to the job, but because it portrays an intangible ideal to a hirer. 

The process whereby an independent third party attests to the quality of a good or service. 

I.E. Roger Ebert

Revenge

Assessing rishk

PLanning and saving for reitrements

Understanding how groups allocate control over resources is crucial to understanding how the society operates.

A property right is the legal right to excersise some control over a resource. Property rights can determine how we relate to each other.

Agreements between two indiviudals, firms etc are not costless. They require gatehering data, bargaining, lawyeres, monitoring etc.

Then costs of conduction a transaction are called transaction costs. 

Transaction costs can keep something from getting done, or make it take longer and be costly, even if it would make all parties better off in the long run. 

Good public policy attempts to lower transaction costs.

Externalities will be corrected by the markey without any governemnt interference if:

1. Property rights are clearly defined

2. Transaction costs are nonexistanct or really low

Bad behavior or incident leads to bad outcome which in turn induces behaviors that make the situation worse

Ex: Raise price of declining transit system, even less people take transit, transit is in worse financial situation

Good behavior or incident leads to bad outcome which in turn induces behavior that makes situation better

Ex. Increase police in bad neighborhood at night, more residents go outside at night, crime is detered even furter 

Even when situations are disrupted by some sort of shock, there is a self-correcting mechanism that is likely to move the situation back toward it's starting point.

Ex: Market self corrects in consumer-producer world (I.E. Apples)

• Collective action problems:

Occur when each individual of a group pursues a rational strategy, yet the collective outcome is collectively irrational.

Rational shirkers and free riders enjoy the benefits of the group without any of the costs

Individual efforts become less important to the overall group efforts

It is easier to monitor behavior in smaller groups