Sungkyunkwan University (SKKU) International Summer Semester (ISS) 2017
“New Experience, New Engagement”
Public Economics and Policy: Theory, Evidence
and Behavioral Insights
Prof. David Reinstein, University of Exeter
SHORT COURSE DESCRIPTION
Public Economics considers: What do modern governments do, and what is the role of public policy
in a market economy? We will evaluate the government’s ability to achieve better outcomes in
terms of social welfare, equity, and efficiency. We will discuss the arguments economists make for
government interventions to remedy market failures, redistribute resources, and provide public
goods. This course is applied: we will discuss and compare actual and proposed programs (in several
countries) in the areas of poverty reduction, education, and health. Students will learn to make clear,
logical, economic arguments for or against specific policies.
The course introduces two prominent innovations in policy-making:
1. Experiments/evidence-based policy: Students will learn basic principles of randomized controlled
trials (RCTs) and how economists, governments, and firms have used RCTs and "natural
experiments" to assess the effectiveness of programs.
2. Behavioral Insights: Government agencies (e.g., UK Behavioural Insights Team) increasingly use
tools from behavioral economics and psychology. Students will learn prominent behavioral models
such as "loss aversion" and "present-bias", and consider applications of these to policy through
"nudges" and restructuring "choice architecture".
This course will combine interactive lectures, group research and presentations (with individual
write-ups), and class discussion.
Themes
i. Introduction to Public Economics and Government
ii. Market failures
iii. Policy-making and evaluation
iv. Behavioral economics and its relevance for policy
READING MATERIALS
A complete set of course notes will be provided. Supplementary (non-required) reading materials will
be referenced or linked within, including selections from academic articles, popular media, statistical
resources, and online textbooks/handbooks. A sample of these enrichment materials are given below.
There are no required texts, but students may find it helpful to consult a reference such as Rosen and
Gayer (2007), Stiglitz (2000), or Myles and Hindriks (2006); see discussion in course notes.
COURSE REQUIREMENTS AND GRADING
Active participation is encouraged. Students should bring their laptops or similar devices to class as
some classes will involve searching the internet for news, policy details, and statistics.
In addition, students will work in groups:
- on analytical problems
1
-
sourcing and presenting up-to-date international statistics
preparing for and participating in debates
inventing, designing, researching, and justifying policy proposals and trials, or evaluating
existing policies, and presenting this to the class
Each student will put together and submit a short “portfolio” outlining and discussing some
component of their group work. (We will set aside time to prepare these and Dr. Reinstein will offer
guidance.)
Mark shares are:
- 20%: Class Participation
- 30%: Group presentations
- 50%: Individual portfolio of group work
Please note: All ISS classes are pass/fail, but students can request a letter grade if their home
university requires it. SKKU regulations require students to attend at least 80% of all classes in order
to pass the course. There is no required exam for the course, but an optional exam will be made
available in case the home university requires it.
COURSE SCHEDULE
(Some adjustments may be made to accommodate time constraints and student interests)
– WEEK I –
Tuesday (27 June)
I. Introduction to Public Economics and Government
The field of Public Economics, the key questions, what government actually does, the scale of things,
motivating examples, cool resources
Wednesday (28 June)
(Continued discussion of Public Economics and government)
- In-class group mini-project 1: South Korea’s public spending in an international perspective
(gathering, assessing, and discussing statistics)
- Presentation of mini-project
Thursday (29 June)
Why should we have government (and what, when, and how)?
- Efficiency of the market: the basic idealized model
- Market failures and the economic rationale for 'collective choice' (brief, first take)
Enrichment (optional): Dissenting view – Planet Money podcast “Better Living Through
Libertarianism”
Friday (30 June)
(Government’s role, continued)
- Inequality, poverty, redistribution, and measures of individual and social welfare
- Efficiency principles for taxes (and benefits)
- Class discussion and debate: ‘Should taxes in South Korea be made more progressive?’
Enrichment (optional):
- Atkinson et al (2011). “Top incomes in the long run of history”
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-
Podcast: Tax Me Please
– WEEK II –
Monday (3 July)
II. Market failures
- Public goods (and externalities)
- In-lecture experiments and surveys: voluntary provision of public goods, voting on
public goods, discussion
Enrichment (optional):
-
Chaudhuri, 2009. Sustaining cooperation in laboratory public goods experiments: a selective
survey of the literature
-
The Tuesday Podcast: Lighthouses, Autopsies And The Federal Budget
Tuesday (4 July)
Market failures: Monopolies and imperfect competition
- Price discrimination (and policy)
- Class discussion/debate: should government allow/encourage price discrimination by
income?
Enrichment (optional): Reinstein: Should we help companies tailor prices to your wage packet?, with
accompanying worked examples
Wednesday (5 July)
Market failures: Asymmetric information
- Relevance for health policy
Enrichment (optional):
- Akerlof (2001): “The market for 'lemons': quality uncertainty and the market mechanism”
- Podcasts: “This American Life” – episodes 391 and 392 (discussion of some key principles
in health care provision)
Thursday (6 July)
III. Policy-making and evaluation
- Sources of evidence, econometrics and policy-evaluation ('Evidence-based policymaking')
- Poverty-reduction policies: theory and evidence
Enrichment (optional): Test, Learn, Adapt: Developing Public Policy with Randomised Controlled
Trials
Friday (7 July)
- Higher Education policy: theory and evidence
- In-class group mini-project 2: Proposed trial to assess an existing policy
- Time allotted for individual work on portfolio, consultation with Dr. Reinstein
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– WEEK III –
Monday (10 July)
- Presentation of group mini-project 2
IV. Behavioral economics and its relevance for policy
- Theory: Limited reasoning and calculating ability, rules of thumb, biases, frames and
“subliminal” influences, falling into habits and routines, etc.1
_____________________
1
Technical terms: bounded rationality/cognition, heuristics and biases, framing/anchoring, satisficing,
inertia, cognitive dissonance, salience, etc.
- Applications – ‘Coloring the signposts’: Frames, nudges, “choice architecture”
Enrichment (optional):
- Dellavigna (2009). “Psychology and Economics: Evidence from the Field”
- “EAST: Four simple ways to apply behavioural insights” (BIT, 2014)
Tuesday (11 July)
Behavioral economics and its relevance for policy, Part 2
- Theory: Loss aversion, impatience and self-control problems, other-regarding preferences
- Applications – ‘Real differences’: Incentives, information, reputation
Wednesday (12 July)
- Behavioral insights in policymaking: theory, evidence, and practice Part 1: Paternalistic, program
participation).
- Includes: Savings and investment, Education and childcare, Health, Participating in other
government programs
Enrichment (optional): Ashraf, N. et al. (2006) “Tying Odysseus to the mast: Evidence from a
commitment savings product in the Philippines”
Thursday (13 July)
- Behavioral insights in policymaking: theory, evidence, and practice (Part 2: Cooperation,
compliance, contributions)
- Includes: Tax compliance, Blood and organ donation, Voting, Survey/census
response, Environmental and energy conservation, Crime and violence, Business
and investment, Social contact
- In-class group mini-project 3: Proposed application of behavioral economics to policy
Friday (14 July)
- Presentations of in-class group mini-project 3: Proposed application of behavioral economics to
policy
- Discussion of projects
- Review, discussion
– WEEK Ⅳ –
Monday (17 July)
- 'How to write a research paper': Tips
- Time allotted for individual work on portfolio, consultation with Dr. Reinstein
- Review, discussionReview, discussion
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