Monday, January 11, 2010

ECON 539-Public Policy Analysis: Incentives Matter

Finally time to get down to brass tacks and start some real teaching after a delayed start to the quarter caused by a chilly visit to Atlanta. I am teaching a class in the Masters in Public Policy program (and cross-listed as ECON 439 for our advanced undergrads) and will add a discussion here as an experiment in new media teaching.

Today's class will be about the basics of economic theory: how individuals respond to incentives. Economists believe that they do so in predictable ways. A more nuanced statement might allow for many personal idiosyncrasies but that on average people tend to behave like economic theory predicts.

I will start the class with a discussion of a paper by a friend of mine, Stacy Dickert-Conlin, who found a (surprisingly?) large response from the financial incentives to have a baby before midnight on December 31 from the US tax code and EITC.

With this as background we will go over the basics of preference theory, optimal choice and utility maximization.

Then, we will examine things that affect choice: changes in income (new Oregon income taxes), prices (tax on gasoline) and new technologies that alter costs like hybrid cars. We will also look at policies like food stamps which change the shape of the budget constraint.

Finally we will review the most fundamental concept in economics in my opinion: the concept of Marginal Benefit = Marginal Cost (MB=MC).

My class is overstuffed - literally - apparently there were jokes about calling the fire marshal in the first class (covered by a colleague), so no more can join this term. But the class will be offered again next year if anyone is interested.

3 comments:

Andrew said...

I just wanted to say (ahem) that there is at least one Masters Econ student in your class as well... me. It's not all MPP. :)

ben said...

Well all the Econ students are bored as hell. Thankfully we know it will pick up eventually. I swear though the MPP students see an indifference curve and their brain short circuits.

Patrick Emerson said...

Ben and Andrew,

I understand your perspective and the difficulty of having to go through the basics again. However, I would not underestimate the utility of reinforcing the economic intuition. Studies show that all of the technical aspects of economics education can get in the way of comprehension. When I was a PhD student the department in which I was studying found that while graduate students were becoming adept at the math, they were losing sight of the basic economic intuition and made us all take a basic intermediate micro course.

Next year we hope to offer 439 and 539 separately so that the very different needs of 439 and 539 students can be more effectively satisfied.

Also, hopefully with more resources, the department can offer more upper division electives...