Question

Q3_3From Theory and Practice in Policy Analysis, by M. Granger Morgan. Should policy analysis be more like science and avoid value judgments? If so, how do we ensure that it is useful and relevant.

Answer 1

Policy analysis should be like based on Value Judgements. Modern economists have attempted to strip value judgments out of their policy analyses. Policies are judged on how they are likely to affect economic variables such as income and its distribution, and how those changes would affect overall welfare. If the models suggest that one policy choice—a top tax rate of 40%, say, rather than 50%—leads to greater welfare than another, that is usually good enough for an economist.

This approach is enormously valuable. It disciplines thinking, produces useful information and makes it easier to build professional consensus about what is known and which questions remain unanswered. Though cost-benefit analysis is not perfect, is often the best route to getting informed experts to agree.

Used in isolation, however, it can lead to trouble. In a paper presented at the annual conference of the American Economic Association (AEA) in January, Matthew Weinzierl, of Harvard University, notes that the world is too complicated to be modelled with anything like perfect accuracy. Many knock-on effects from policy shifts are unknowable beforehand. He suggests that in the absence of perfect foresight, policymakers could turn to social principles or rules that have evolved over time. These may reflect accumulated knowledge about some choices’ unintended consequences. He gives an example. Governments might choose to increase redistribution based on evidence that high inequality creates feelings of envy, and envy reduces the welfare of the non-rich by making them feel worse. Yet survey evidence suggests that people are largely opposed to redistribution that is motivated by envy. Validating envy through tax policy could prove socially corrosive, in a way that economists’ models fail to capture.

Put differently, Mr Weinzierl contends that economists should take moral concerns more seriously. That is something close to professional heresy. At the AEA conference Alvin Roth, a Nobel prizewinner, delivered a lecture on his life-saving work in the field of market design. To donate an organ, one must share a blood-type with the recipient. Someone who would be willing to donate a kidney to a friend or family member might be stymied by a difference in blood-type. Mr Roth circumvented this problem by developing matching markets, in which one person donates to a compatible stranger and in turn receives another stranger’s compatible organ for use by the donor’s ailing loved-one. Such swap groups can include scores of donors and recipients, who might otherwise have died awaiting a transplant.

Yet demand for healthy organs vastly outstrips supply. Were it legal to buy and sell organs, many more people might donate, helping to alleviate the deadly shortage. Moral qualms generally discourage governments from legalising the trade. This is an example of what Mr Roth calls a “repugnant market”, one which is constrained by popular distaste or moral unease. Repugnance, he laments, tilts the political playing field against ideas that unlock the gains from trade. He recommends that economists spend more time thinking about such taboos, but mostly because they are a constraint on the use of markets in new contexts.