How do you balance objectives in public economics?

1 Efficiency vs equity

One of the fundamental trade-offs in public economics is between efficiency and equity. Efficiency refers to the optimal allocation of resources that maximizes social welfare, while equity refers to the fair distribution of income and opportunities among individuals and groups. Public policies often involve a trade-off between these two goals, as they may improve one at the expense of the other. For example, a progressive tax system may reduce income inequality, but also create disincentives for work and investment. A public economist needs to weigh the costs and benefits of different policy options, and evaluate their impact on both efficiency and equity.

2 Market vs government

Another key trade-off in public economics is between market and government. Market is the mechanism that coordinates the decisions of buyers and sellers through prices and competition, while government is the institution that intervenes in the market through laws and regulations. Public economists need to assess the relative merits and limitations of both market and government, and determine the optimal level and scope of public intervention. For example, a public economist needs to identify the sources and extent of market failures, such as externalities, public goods, and asymmetric information, and design appropriate policy responses, such as taxes, subsidies, or regulations. A public economist also needs to recognize the potential problems and costs of government failures, such as corruption, rent-seeking, or bureaucracy, and devise ways to improve governance and accountability.

3 Short-term vs long-term

A third trade-off in public economics is between short-term and long-term. Short-term refers to the immediate or current effects of public policies, while long-term refers to the future or lasting effects of public policies. Public economists need to balance the short-term and long-term implications of their decisions, and avoid short-sightedness or myopia. For example, a public economist needs to consider the intertemporal effects of fiscal policy, such as how deficits and debt affect growth and stability. A public economist also needs to account for the dynamic effects of public policies, such as how incentives and behavior change over time.

4 Local vs global

A fourth trade-off in public economics is between local and global. Local refers to the effects of public policies within a specific country or region, while global refers to the effects of public policies across different countries or regions. Public economists need to balance the local and global dimensions of their work, and acknowledge the interdependence and spillovers among different jurisdictions. For example, a public economist needs to analyze the effects of trade and migration on domestic welfare and inequality. A public economist also needs to address the challenges and opportunities of international cooperation and coordination on issues such as climate change, development, or taxation.

5 Normative vs positive

A final trade-off in public economics is between normative and positive. Normative refers to the value judgments and ethical principles that guide public policies, while positive refers to the factual and empirical analysis that informs public policies. Public economists need to balance the normative and positive aspects of their work, and be transparent and rigorous in their reasoning and evidence. For example, a public economist needs to clarify the assumptions and criteria that underlie their welfare and efficiency evaluations. A public economist also needs to test the validity and robustness of their models and data.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?