Tuesday, July 21, 2009

Policy Design and Evaluation

Very little of the debate surrounding the McCarthy report has focused on actual economic evidence, and the report itself does not contain any references to scientific articles in Economics.

This is not necessarily a criticism of the report. But it should be remembered that the name "Bord Snip" is a joke name and not the title of the report, which is actually Report of the "Special Group on Public Service Numbers and Expenditure Programmes".

Given the title of such a document, people who lived in a cave and read only this blog and surfaced the odd time for seminars might have expected intense discussion about the precise effect of class sizes on student attainment, or references to randomised trials examining the cost-effectiveness of different types of social welfare systems.

What the report delivered was solid, old-style, common-sense suggestions for where budgets in different departmental divisions had become too fat along with solid recommendations for reducing this. The report is written in very plain English and the authors are in no sense open to allegations of fudging their task or being vague.

It does leave open questions on what should be the status of modern economic analysis in the future shape of public sector development in Ireland. The report leans heavily toward the implementation of traditional solid CBA analysis linked to performance reviews, laudable in themselves but certainly something that could be done without any knowledge of recent literatures in econometrics, behavioural economics, programme design and so on.

The question people who are working in these fields need to ask is whether the work going on in these areas should be having more influence on the discussions on policy in Ireland in areas such as pensions, taxation, aging, health, education, social welfare, transport and so on. I have been fortunate enough to debate these issues with many people in business and policy and views range from a strong belief that policy design is being crippled by a failure to engage properly with new thinking in economics to a view that anything beyond solid accounting and strategic management of targeted policies is a waste of money.

Obviously, my own view leans toward a belief that the new literatures in economics are teaching us a lot about the policy issues that an aging population in Ireland and Europe will face. The bring together of economics, psychology, public health and related fields linked to people who have expertise in the implementation and oversite of policy has, in my view, the potential to dramatically improve the way policies are developed and delivered. At present, such literatures are at the very margins of conciousness for most of the people charged with developing and implementing policy. Economics became a very strong force in countries like Ireland as acceptance emerged of principles of regulation and market systems emanating from the academic literature. The current academic literature is increasingly dominated by accounts of agents with imperfect information and bounded rationality but, as yet, with very small policy impact even internationally (though clearly Thaler and Sunnstein are becoming increasingly discussed and the latter now has a policy position). For people who read this blog, the question is whether behavioural economics is a meaningful career path outside of academia. Will the policymakers, evaluators, business leaders and so on in the next few years be as influenced by the current literature as the older generation were by their literature? A lot will depend on how the US literature and policy landscape develops but a lot more thinking is also needed here.

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