: The Microeconomics of Public Policy Analysis

University Press. All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher, except for reading and browsing via the World Wide Web. Users are not permitted to mount this file on any network servers. Policy analysis involves the application of social science to matters of public policy. The specific tasks of an analysis depend importantly on which aspects of policy are to be understood , who wants to know, and how quickly the analysis is needed. For many, the excitement of this discipline is in its often turbulent political application: the undertaking and use of policy analysis as a part of actual government decision-making. In that application the analysis is undertaken in order to advise; it is for the use of specific decision makers whose actions will depend on the analytic results. For others, the excitement is in rising to a more purely intellectual challenge: to create a more general understanding about how public policy is, and ought to be, made. The latter effort represents the more academic side of policy analysis. However, the same basic intellectual skills are used to conduct both types of analyses. Microeconomic analysis is one of the fundamental skills of this discipline. It provides a critical foundation for both the design and the evaluation of policies. This is hardly surprising: Most public policy involves resource allocation. To carry out virtually any government policy either requires the direct use of significant resources or severely constrains the use of resources by economic agents (i.e., individuals, firms, or government agencies). These resources (labor, buildings, machinery, and natural resources such as water, oil, and land) are scarce, and different people will have different ideas about what to do with them. A proposed dam may mean economic survival for farmers needing water to grow crops, but may at the same time threaten destruction of a unique white-water river and canyon irreplaceable to the fish species that spawn there and to lovers of nature. A town may, through its powers of zoning, declare certain or all areas within it for residential use only—to the chagrin of a company that wants to build a small factory (which would employ some of the town residents and provide local tax revenues) and to the delight of estate owners adjacent …