Public Policy: Cost-Effectiveness, Institutions, and Entities

Cost-Effectiveness Analysis

Cost-effectiveness analysis ranks policies based on their costs for achieving a defined objective. This analysis is implemented when there is no reasonable consensus on how the relevant costs and benefits can be evaluated. Cost-effectiveness doesn’t evaluate the worthiness of a project based on its benefits relative to costs; instead, it takes some outcome or goal as given and evaluates the efficiency of the various options for achieving it. For example, if policymakers decide to reduce CO2 emissions by 10%, there would be many ways of achieving this goal.

Institutions in Public Policy

Institutions are the laws, organizations, and unwritten rules that make public policy possible. Groups ranging from a handful of homeowners to nations of hundreds of millions of people create institutions to facilitate their communicable interactions. The federal government is also an institution, although it is important to know that the Senate, House of Representatives, and Supreme Court are distinct institutions within that government, each with its own responsibilities, structure, and rules. School districts and neighborhood associations are institutions, as are the United Nations and the World Trade Organization. More broadly, institutions can also be a set of formal rules or even commonly accepted practices that govern human interaction. Good institutions are a precondition for good public policy.

Effective Institutions

Effective institutions are the laws, organizations, and unwritten rules that make public policy possible. Effective institutions are the ones that are capable of doing the three basic roles of an institution: aggregating the preferences of the members who make up the relevant group; implementing and enforcing communal decisions; effective institutions must have the capacity to carry out their policies in a way that achieves the intended effect; and protecting minorities and dissenting views.

Private Entities Versus Public Institutions

Public institutions must have the capacity to design, operate, and enforce policies consistent with their members’ preferences.

• Public institutions are generally assigned tasks that the private sector will not or cannot do.
• Public institutions are often assigned a particular responsibility when a profit-maximizing firm doing the same task would have an incentive to behave in ways that might cause social harm.
• Private firms can measure success in dollars and cents, which makes it easier to define goals and measure success.
• Private firms are not democracies; even public companies, which are owned by their shareholders, do not have elaborate protections for dissent.
• Public institutions are often given the responsibility of making individuals, firms, and even nations do things that they would otherwise choose not to do.