Cost-Benefit Analysis of 4 Types of Policies

1. Cost-Benefit Analysis of 4 Types of Policies

2. I. Cost is any burden (monetary or non-monetary, real or perceived), that a group must bear : • A. Federal child-care programs (increased taxes). • B. Busing to achieve school desegregation (taxes, psychological stress). • C. Tariffs (higher prices for goods). • II. Benefit is any satisfaction (monetary or non-monetary, real or perceived) that a group will enjoy from a policy: • A. Federal child-care programs (lower child care costs for parents). • B. Busing to achieve school desegregation (improvement in opportunity, greater racial harmony). • C. Tariffs (more jobs for workers, more profits for businesses).

3. Ill. Costs and benefits can be either widely-distributed or narrowly-concentrated. Examples: • A. Widely-distributed costs: • B. Narrowly-concentrated costs: •     C. Widely-distributed benefits: •     D. Narrowly-concentrated benefits: • IV. Four types of policies: •     A. Majoritarianpolicies. •         1. Involve widely distributed costs and widely distributed benefits. • 2. Examples: Social Security, national defense.         

4. 3. Analysis: •             a. Usually not dominated by interest groups: virtually everyone benefits from these, so why should an interest group use scarce resources to lobby for policies that everyone will benefit from? Interest groups will benefit whether or not they devote resources to lobbying. This could lead to a lack of incentive to participate. •             b. When a policy is adopted and people are convinced that benefits are worth the cost, debate ends and the program tends to steadily grow, and perhaps even becomes a “sacred cow”that government dare not touch. 

5. B. Interest group policies. •         1. Involve narrowly concentrated costs and narrowly concentrated benefits. •         2. Examples: tariffs, antitrust exemptions. •         3. Analysis: these tend to be fought over by interest groups: the affected parties are small enough, and the potential costs and benefits are great enough, to warrant interest.

6. C. Client Policies •         1. Involve widely distributed costs and narrowly concentrated benefits. • 2. Examples: farm subsidies, airline or trucking regulation, pork barrel bills. •         3. Analysis: •             a. Strong incentive for interest groups to participate. It will receive the benefits, but the costs will be spread out to everyone. •             b. Since costs are so widely distributed and therefore relatively small to each consumer, cost payers are sometimes unaware that they are even paying the costs. •             c. Since interest groups benefit so much from these, they are said to be a “client” of the related federal agency—client groups.

7. D. Entrepreneurial policies. •         1. Involve narrowly concentrated costs and widely distributed benefits. •         2. Examples: consumer product safety legislation, ending farm subsidies, deregulation. •         3. Analysis: •             a. Strong incentive for potential cost-paying group to participate. •             b. Prospective beneficiaries may find widely distributed benefits too small to work hard for. • c. Because of a and b, policies of this category are often defeated by the concerted efforts of cost-paying interest groups. •             d. Despite this, such policies are from time to time passed through the strong efforts of people who act on behalf of the unconcerned or unaware.