Abstract Both economists and political scientists have made important contri-
butions to the field of public policy analysis. Economists have stressed the roles
of competition, natural monopolies, information asymmetries, externalities, incen-
tives, and federalism in promoting or undermining efficiency. Political scientists, in
contrast, have focused more on the mechanics of agenda change, the likelihood of
nonincremental policy change, and how the policy-making process varies across is-
sue areas. Economists have influenced government decisions that led to the creation
of public utility commissions, emissions trading, revenue sharing, and health main-
tenance organizations. Political scientists have influenced government decisions on
the design of political institutions (environmental impact statements, legislative re-
districting) and on the choice of public policies (criminal justice strategies, welfare
reform). In general, the presence of a scholarly consensus facilitates the use of pol-
icy analysis. However, interest group politics and electoral incentives also play an
important role.
INTRODUCTION
The proverbial blind men asked to describe an elephant had something to grasp
or feela sharp tusk, a rough hide, or a quivering trunk. A sighted person asked
to describe the field of public policy analysis has a far more difficult task. The
field is ever-changing, with multiple strands, practitioners, goals, and audiences.
Unlike many academic fields, it does not spring from a single discipline. Unlike
many academic fields, it is not the exclusive province of academia but rather an
enterprise shared by universities, think tanks, advocacy groups, and governmental
institutions. Unlike that of many academic fields, its worth resides not simply in its
utility to students but also in its value to public officials and other clients. Unlike
those of many academic fields, its products are widely used and just as widely
distorted by interest groups that have their own claims to promote. Imagine an
elephant enshrouded in mist in a remote jungle accessible only to a few intrepid
explorers. That is the beast I attempt to describe here.
Public policy analysis can be defined narrowly or broadly. A relatively narrow
definition has been advanced by Weimer & Vining (1999, p. 27): client-oriented
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lic policy choices for the general public as a whole and sometimes for particular
by Pontificia Universidad Catolica de Chile on 06/20/07. For personal use only.
These conditions are (a) that firms sell a standardized product, (b) that firms are
by Pontificia Universidad Catolica de Chile on 06/20/07. For personal use only.
price takers, (c) that factors of production are perfectly mobile in the long run, and
(d) that firms and consumers have perfect information (Frank 2006, pp. 36869). In
practice, perfect competition is difficult to achieve or sustain. Nevertheless, many
economists have endorsed privatization, deregulation, and other options that move
in the direction of an unfettered marketplace.
For years, economists have argued that certain services (e.g., electricity) are
best provided by natural monopolies (e.g., public utilities), because economies
of scale make it easier for one company to supply this service within a given ju-
risdiction. This thinking, highlighting a form of market failure, led state public
utility commissions to carve out exclusive service areas for electric, natural gas,
and telephone utilities within their states. More recently, however, economists have
challenged the logic behind natural monopolies in certain areas, including tele-
phone service and electricity distribution. This led some economists to recommend
that telecommunications and electricity markets be deregulated to allow greater
competition among firms.
A similar pattern can be discerned in transportation policy. Early in the twen-
tieth century, prominent economists such as John R. Commons recommended the
creation of state commissions to regulate railroad rates because the market was
thought to be failing. The argument was that the railroad industry was too prone
to oligopoly and too vital to the national interest to be left unregulated. Later, in
the 1960s and 1970s, distinguished economists recommended the elimination or
reconstitution of bodies that determined entry and rates in the airline industry, the
trucking industry, and the railroad industry. Their central argument was that regu-
lation of price, entry, and exit often undermined economic efficiency (Meyer et al.
1959, Averch & Johnson 1962, Joskow & Noll 1981). Their preferred remedy was
deregulation, and they were virtually unanimous in that recommendation. Other
social scientists agreed. As economist Roger Noll (cited in Derthick & Quirk 1985,
p. 54) noted, I know of no major industrial scholarly work by an economist or
political scientist or lawyer in the past 10 years that reaches the conclusion that a
particular industry would operate less efficiently and less equitably (without) than
with regulation.
Beginning in the 1960s, some economists challenged the primacy of fee-for-
service medicine by arguing that sharp increases in health care costs were inevitable
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so long as consumers had no incentive to seek out less costly care and health
providers had no incentive to offer it. As Enthoven (1978a, p. 651) put it, The
main cause of the unjustified and unnecessary increase in costs is the complex
of perverse incentives inherent in the tax-supported system of fee for service
for doctors, cost reimbursement for hospitals, and third-party intermediaries to
protect consumers. The solution, he argued, was to introduce competition and
consumer choice into the health care market. In support of health maintenance
organizations as an alternative, Enthoven offered both theoretical arguments and
empirical evidence that HMOs achieved substantial cost savings in markets where
they flourished (Luft 1977 cited in Enthoven 1978b).
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of information asymmetries between the producers of goods and services and the
consumers of goods and services. In many markets, consumers possess far less
information about the quality of a product than producers or owners do. The used
car market is a good example, as evidenced by the sale of numerous lemons
to unsuspecting consumers (Akerlof 1970). There are, in fact, solutions to this
problemthe provision of information, warranties, etc. To mitigate information
asymmetries, economic policy analysts have recommended better labeling of food
and drugs, consumer product alerts, and other measures to help consumers protect
themselves.
The concept of externalities is very important to economics and to policy anal-
ysis conducted by economists. When a firm produces pollutants as a byproduct
of its regular production process, it imposes uncompensated costs (negative ex-
ternalities) on those who live or work in that area. Unless government intervenes
in some fashion, private firms will generate excessive pollution because they are
not being asked to compensate those who are harmed by their pollution (Baumol
1972). Although some economists stressed that the assignment of property rights
helps to resolve externality problems (Coase 1960), most economists argued in fa-
vor of government intervention, usually through taxes, as first suggested by Pigou
(Cropper & Oates 1992).
The federal governments approach to environmental protection in the 1970s
moved in a very different direction, as illustrated by the Clean Air Act of 1970, the
Clean Water Act of 1972, and many subsequent laws. In those statutes, the federal
government required polluters to curb their emissions and required state govern-
ments to enforce federal antipollution laws. As Cropper & Oates (1992, p. 675)
have conceded, The economists view hadto the dismay of the professionlittle
impact on the initial surge of legislation for the control of pollution. In fact, some
key environmental laws explicitly prohibited the weighing of benefits and costs in
setting environmental standards. The prevailing approach for approximately two
decades, sometimes known as command and control regulation, represented a
triumph for lawyers and environmental groups, a defeat for economists and busi-
ness organizations.
Before and after passage of these laws, economists complained that command
and control regulation is inefficient. A better approach, they argued, would be
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and would then issue emission permits (licenses to pollute) to each polluting
by Pontificia Universidad Catolica de Chile on 06/20/07. For personal use only.
firm. These permits could be traded in an open market, with the expectation that
firms facing more costly pollution reductions would buy permits and firms facing
less costly pollution reductions would sell them. A tax (or price-based approach)
and emissions trading (or quantity-based approach) should yield identical results,
provided that perfect information is available to regulators and firms (Cropper &
Oates 1992, p. 682). In theory, such trades should result in a lower national price
tag for pollution reduction, because firms that can reduce pollution more cheaply
will do so. Carbon trading, recently promoted as a solution to global warming, is
based on the same premise. In the words of one economist, The beauty of carbon
trading is that it takes a primal human impulsegreedand redirects it toward
saving the planet rather than destroying it (Goodell 2006, p. 36).
Although many propositions within economics are relevant to the design of
public policies, others are more relevant to the design of political systems. An
example is the Tiebout (1956) hypothesis, which says that residents of smaller
jurisdictions (e.g., local governments) are better able to express their preferences
than are residents of larger jurisdictions (e.g., the United States as a whole). If
the residents of Chicago think they are overtaxed, they can move to Bloomington
or Normal or a neighboring state. If the residents of Peoria would prefer more
public goods, they can move to Chicago or St. Louis. Tiebouts conclusion is
that local governments tend to be more responsive to their citizens than other
levels of government are. This leads him to advocate greater discretion for local
governments.
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would agree it does) but rather that consideration of a particular issue or type of
issue by public officials carries important political consequences. For example,
presidential involvement tends to be high when redistributive issues are consid-
ered, low when distributive issues are considered, and moderate or variable when
regulatory issues are considered. Peak associations play a significant role when
substantial income transfers from the rich to the poor are under review, small inter-
est groups play a dominant role when porkbarrel projects are at stake, and trade
associations get involved when the government regulates private firms. Redistribu-
tive issues have many of the characteristics of a zero-sum game for society as a
whole, whereas distributive issues have many of the characteristics of a positive-
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sum game. Regulatory issues have some zero-sum characteristics but only within a
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particular sector of the economy (e.g., long-distance carriers versus local telephone
companies).
In a similar vein, Wilson (1973) advanced a different typology. Unlike Lowi,
who focused on issues or issue areas, Wilson focused on policy proposals. He
argued that the politics of a legislative proposal to protect the environment will
differ from the politics of a legislative proposal to pollute the environment. More
specifically, he urged policy analysts to consider whether the costs and benefits
of a policy proposal are widely distributed or narrowly concentrated. If costs and
benefits are narrowly concentrated, interest group politics will result, with com-
peting interest groups clashing over the specifics. If costs and benefits are widely
distributed or dispersed, majoritarian politics will emerge, with the general public
playing a significant role. If benefits are narrowly concentrated but costs are widely
distributed, clientele politics will ensue, with special interest groups dominating
the field. If benefits are widely distributed but costs are narrowly concentrated,
entrepreneurial politics will occur, with policy entrepreneurs championing the in-
terests of the general public.
Many political scientists have utilized, applied, and tested these typologies, with
good results (Wilson 1980, Ripley & Franklin 1991, Sharp 1994). Other political
scientists have developed their own typologies, focusing on salience and conflict
(Price 1978), salience and complexity (Gormley 1986), or other variables. These
typologies have also been tested and applied (Gerber & Teske 2000, Gormley &
Boccuti 2001, Eshbaugh-Soha 2006).
Although political scientists have largely defined the policy-making process
as the public policymaking process, a number of scholars have highlighted the
growing importance of nonprofit organizations and for-profit firms in delivering
services on behalf of the government (Savas 1987, Kettl 1993, Light 1995, Salamon
2002). From this literature, we have learned how attractive contracting out can be
at all levels of government but also how difficult it can be to hold contractors
accountable for what they do or fail to do. Some political scientists have also
drawn our attention to the extraordinary importance of the private sector in the
United States in providing social benefits such as pensions and health insurance to
employees. While acknowledging that the public sector accounts for a lower per-
centage of the GDP in the United States than elsewhere, Hacker (2002) notes that
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the United States looks like many other industrialized countries when one com-
bines public and private social benefits. What is most distinctive about American
social welfare practice, he observes, is not the level of spending but the source
(Hacker 2002, p. 16). This insight opens up new vistas for research as we think
more broadly about what constitutes the policy-making process.
Commons helped to convince the Wisconsin State Legislature and Governor Robert
LaFollette to create the nations first (or second) public utility commission. He also
made suggestions on how the commission should be structured and later served
on it. Later in the twentieth century, economists made contributions to the design
of public utility commission policies aimed at promoting energy conservation.
Prominent economists recommended the adoption of marginal cost pricing, which
enabled utilities to charge consumers (both industries and residents) higher prices
during periods of peak demand. As chairman of the New York Public Service
Commission from 1974 to 1976, Alfred Kahn, formerly an economics professor
at Cornell University, seized every opportunity available to promote the virtues
of marginal cost pricing. At daily swims, with only his head visible, he would
lecture staff members on the finer points of cross-subsidies, elastic demand, and
peak-load pricing (McCraw 1984, p. 247). By the early 1980s, most state public
utility commissions had incorporated marginal cost pricing principles into their
rate structures (Gormley 1983).
Economic thinking also contributed significantly to debates at the federal level
over airline deregulation (and surface transportation deregulation). In 1975, Sena-
tor Edward Kennedy (DMassachusetts) held hearings on the airline industry, with
assistance from an able staff member, Stephen Breyer, a Harvard law professor who
took a leave of absence to work on these issues (Breyer is now a Supreme Court
justice). These hearings were instrumental in establishing a connection between
economic theory, empirical evidence, and proposals to deregulate the airline in-
dustry. As Derthick & Quirk (1985, p. 54) have pointed out, deregulation benefited
from having a broad base of support in academic opinion and analysis. In one way
or another, the intellectual premises of this policy prescription had been adopted
to an exceptional degree by academics, especially in the elite universities. While
some academics made the case against regulation by invoking capture theory
an idea promoted by both economists and political scientistsothers relied more
on marginal cost pricing as the justification. Alfred Kahn, appointed by President
Jimmy Carter to chair the Civil Aeronautics Board in 1977, became a staunch
advocate of deregulating the airline industry and abolishing his own agency. Dur-
ing his tenure as chair, Kahn initiated significant deregulatory policies, including
rate competition, open entry, and new route authority (McCraw 1984, p. 290).
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The passage of the Airline Deregulation Act in 1978 represented the triumph of
economic thinking in both the legislative and executive branches of the federal
government. As Derthick & Quirk put it (1985, p. 246): If economists had not
made the case for procompetitive deregulation, it would not have occurredat
least not on the scale the nation has witnessed.
As noted above, the environmental legislation of the 1970s reflected the tri-
umph of legalistic rather than economic thinking. The Clean Air Act of 1970
and the Clean Water Act of 1972 embodied the principle of command and con-
trol regulation; both statutes explicitly stated that a benefit-cost analysis was not
to be applied when formulating environmental regulationsa stinging rebuke to
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economists. Over time, however, critics contended that such environmental laws
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were overly costly and inefficient. A new approach was adopted with the Clean Air
Act Amendments of 1990. That approach, as exemplified by emissions trading,
effectively incorporated the economic premise that a market should be created for
trading licenses to pollute. This was a clear victory for economists. In testimony
before a House subcommittee, Richard Schmalensee, an economist serving on the
Council of Economic Advisers, argued strongly in favor of emissions trading. One
of his selling points was a letter of support from 11 of 13 living Nobel laureates
in economics (Schmalensee 1989, p. 212). According to most analyses, emissions
trading has been a success, achieving greater environmental protection at a lower
cost (Burtraw & Mansur 1999, Goodell 2006).
Economist Walter Heller, who served as Chairman of the Council of Economic
Advisers under Presidents Lyndon Johnson and John Kennedy, advocated revenue
sharing (and block grants) that would give state and local governments more dis-
cretion. He urged, We must move toward broader categories [of aid] that will give
states and localities more freedom of choice, more scope for expressing their vary-
ing needs and preferences, within the framework of national purpose (Heller 1966,
p. 142). Although Hellers ideas were ultimately rejected by President Johnson,
they were embraced by both presidential candidatesNixon and Humphreyin
1968 (Conlan 1998, p. 28). Shortly after becoming president, Nixon proposed
a bold New Federalism package that included general revenue sharing for
state and local governments and several new block grants. Congress subsequently
adopted general revenue sharing and two of the block grantsthe Comprehensive
Employment and Training Act (CETA) and the Community Development Block
Grant (CDBG). Eventually, general revenue sharing would be abolished by the
Reagan administration in 1986. But the broader principle of devolving authority to
state governments would remain popular and would be integrated into subsequent
block grant proposals in the 1990s, including welfare reform.
The concept of HMOs has been aggressively promoted by economists in re-
cent years, with considerable success. Dr. Paul Ellwood, a physician, played a
critical role in the early 1970s by developing some of the key concepts behind a
managed care system and by persuading the Nixon administration to embrace this
approach as an alternative to fee-for-service medicine (Belkin 1996). Economist
Alain Enthoven helped to fuel the HMO movement in the late 1970s and 1980s.
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in a New Jersey Superior Court case aimed at increasing state outlays on early
childhood education in poorer school districts. Barnetts testimony cited two long-
term studies (the Perry Preschool Project and the Abecedarian Project) that had
found substantial long-term benefits from high-quality early-childhood interven-
tions aimed at disadvantaged children. He recommended at least one year of state-
funded preschool for disadvantaged children. In an opinion mandating two years of
preschool for children in disadvantaged school districts, the Superior Court cited
Barnetts analysis approvingly and at some length (Abbott v. Burke 1998, Appendix
I). Later the New Jersey Supreme Court would affirm the lower courts decision
(Abbott v. Burke 1998). Thanks to these and other decisions, New Jersey now
guarantees a high-quality pre-kindergarten education to children in poor school
districts (Barnett et al. 2005).
To cite another example, economist Orley Ashenfelter was hired by the Federal
Trade Commission (FTC) to conduct an econometric analysis of the probable
impact of a proposed merger between Staples and Office Depot, two of the largest
office supply firms in the United States. That analysis, which found evidence of
anticompetitive effects and probable price increases, helped to convince the FTC
to oppose the merger (Baker 1999). A federal district court judge, who considered
the case, cited Ashenfelters econometric evidence as a key reason for his decision
to ban the proposed merger (FTC v. Staples 1997).
Some of these reforms have proven more durable and more successful than
others. According to Patashnik (2007), the durability of a given reform depends
on two key factors: group investments in favorable institutions (modest or exten-
sive) and group identities and affiliations (stable or unstable). Tax reforms enacted
in 1986 have eroded over time, because social actors failed to make large-scale
investments in the war against tax loopholes and because group affiliations have
remained largely untouched. In contrast, the Airline Deregulation Act of 1978
has led to a major reconfiguration of the airline industry and customer behavior,
because interest group affiliations and identities have changed and because the in-
stitutional environment changed profoundly as well. As Patashnik (2007, p. 285)
cautions, Sustaining market-oriented reforms against the threats of erosion and
reversal may be, if anything, an even more challenging political task than winning
the passage of these reforms in the first place.
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to contain within the proposals an evaluation of the effect of these proposals upon
by Pontificia Universidad Catolica de Chile on 06/20/07. For personal use only.
the state of the environment (U.S. Senate 1969, p. 116). Later in the same Senate
hearing, the chairman, Senator Henry (Scoop) Jackson (DWashington) told Cald-
well that he would be calling on him for some specific language to implement
what we have discussed here this afternoon (U.S. Senate 1969, p. 121).
Based on Caldwells advice, Congress included a little-noticed provision requir-
ing federal agencies to prepare an environmental impact statement (EIS) when
their proposed rules or actions threatened substantial harm to the environment. The
EIS would become legendary (or infamous, depending on your point of view), be-
cause it sensitized agenciesnot just environmental agenciesto environmental
considerations. Eventually, the EIS requirement led federal agencies to hire huge
numbers of professionals who would bring to their job a much greater awareness
of environmental impacts. The EIS requirement also advantaged environmental
groups seeking some leverage with which to file a successful lawsuit to block a
federal agency decision that might adversely affect air quality or water quality.
In his powerful 1969 book The End of Liberalism, Lowi argued that Congress
had delegated too much power to the federal bureaucracy. Congress, it seemed,
preferred delegating to legislating. Not only was that a bad practice, asserted Lowi
(1969), but it was also unconstitutional, a violation of the nondelegation doctrine.
Lowis constitutional arguments have not impressed the Supreme Court in recent
years, although they have occasionally been articulated (Whitman v. American
Trucking Associations 2001). However, his arguments about legislation seem to
have impressed Congress. During the 1970s, following publication of Lowis book,
Congress passed many environmental and consumer protection laws, which were
noteworthy for their detail. Although these statutes were not sufficiently detailed
or specific to satisfy Lowi and other critics, they nevertheless reflected a substantial
shift from the status quo. Lowis book, more widely read than most political science
books, probably played a role in that shift.
Political scientists have long been interested in legislative redistricting and
the consequences of reapportionment decisions, especially for minority voters.
One question that has generated interest in recent years is whether the creation
of majority-minority districts benefits or harms racial minorities. Some politi-
cal scientists have argued that it is better for minorities to wield some influence
over voting outcomes in a larger number of legislative districts than to be able
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DISCUSSION
In Politics and the Professors, Aaron (1978) offered a bleak assessment of the role
of public policy analysts in evaluating Great Society programs. The Head Start
program, he noted, received some negative evaluations, yet the program remained
enormously popular. The Job Corps program received mixed reviews, yet the
program was curtailed. The college work-study program was not evaluated at all,
yet it remains very popular. The connection between public policy evaluation and
public policy, he argued, was tenuous at best.
I am more optimistic about the capacity of public policy analysis to shape pub-
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lic policy outputs. Both economists and political scientists have made important
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How might we explain the adoption of some policy proposals ostensibly sup-
ported by empirical research, and the defeat of others? In thinking about the appli-
cations of public policy research, Esterling (2004) has developed a useful analytic
framework that stresses the extent of consensus among academics and other experts
in the relevant field. According to Esterling, the presence of good, unambiguous
empirical research in support of a policy proposal enables interest group advocates
to make both instrumental and normative arguments in favor of the policy proposal,
whereas opponents must content themselves with normative arguments alone. This
enhances the influence of interest groups that support the policy at the expense of
interest groups that oppose it. Esterling argues that where a consensus exists, public
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policy analysis is much more likely to have an impact, and he cites the debate over
by Pontificia Universidad Catolica de Chile on 06/20/07. For personal use only.
public policy is made, and many political scientists have contributed to decisions
by Pontificia Universidad Catolica de Chile on 06/20/07. For personal use only.
on which public policies should be adopted, how they should be implemented, and
how the process itself should be restructured. This is a strong foundation on which
to build in the twenty-first century.
ACKNOWLEDGMENT
The author thanks Joanna Mikulski for her helpful research assistance.
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CONTENTS
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April 9, 2007 10:54 Annual Reviews ANRV312-FM
vi CONTENTS
INDEXES
Cumulative Index of Contributing Authors, Volumes 110 391
Cumulative Index of Chapter Titles, Volumes 110 394
ERRATA
An online log of corrections Annual Review of Political Science chapters
Annu. Rev. Polit. Sci. 2007.10:297-313. Downloaded from arjournals.annualreviews.org