Public Policy 184 the ECONOMICS of PUBLIC PROBLEM-SOLVING Fall 2003

Public Policy 184 the ECONOMICS of PUBLIC PROBLEM-SOLVING Fall 2003


Instructor: Prof. Lee S. Friedman

Office: Rm 211, Goldman School of Public Policy, 2607 Hearst Ave. (old building)


Course Meetings:

Lecture: Tuesday & Thursday 2:00-3:30PM, 285 Cory

Discussion: Friday 2:00 - 3:00 PM, 116 Haviland

Graduate Student Instructor: Melissa Vanlandingham



This course is designed to familiarize the student with the ways in which microeconomic analysis can be brought to bear on public policy issues. You will learn (1) to identify the relevant economic questions concerning policy issues of interest to you, (2) to comprehend the economic arguments that bear on these issues, and (3) to evaluate these arguments in terms of their strengths and weaknesses. These objectives are achieved by developing microeconomic modeling skills in the context of a wide variety of public policy issues. Problem sets will be assigned and discussed to help develop these skills.


A prior course in intermediate microeconomic theory is a prerequisite for enrollment in this class.


Classes meet three times per week: twice for one and one-half hour lectures, and once for a one-hour review and discussion section. Please read the assigned material before coming to lectures, and complete assigned problems before attending discussion section.


The basic text for this course is L. Friedman, The Microeconomics of Public Policy Analysis (Princeton University Press, 2002), denoted MPPA and available at the ASUC bookstore, other local bookstores and major online book retailers. Some chaptershave appendices and sections headings in them that have a notational superscript like thisS (for supplementary) or thisO (uses calculus). All of these are optional rather than required, unless specifically assigned. No calculus is required for this course, although those of you who have studied calculus are encouraged to read the optional material.


Grades for the class will be based upon three examinations and the completion of some assigned problem sets. The examinations take place as follows: a quiz on September 28, a midterm examination on November 2, and a final examination. The quiz will count for 20 percent of your course grade, the midterm for 30 percent, and the final for 50 percent. In addition, your exam average may be adjusted upward or downward by one grade (e.g. B+ to A-, or B+ to B) depending upon your work on the assigned problem sets as explained below.

The examinations will be based upon the readings, lectures, and discussions of problem assignments.


Some time in the discussion and review section will be used to go over 7 assigned problem sets from MPPA. You should limit your working time on each problem set to no more than three hours. These will be corrected and graded as "excellent", "satisfactory" or "unsatisfactory". "Unsatisfactory" will only be assigned due to lack of effort. Working on the problems and getting feedback on your work helps you develop the skill of applying microeconomic theory (and it is also good preparation for the examinations). They will affect your course grade as follows:

6 reviews either "excellent" or "satisfactory"+ one grade (e.g. B+ to A-)

4-5 reviews either "excellent" or "satisfactory"neutral

< 4 reviews either "excellent" or "satisfactory"- one grade (e.g. B+ to B)

Most exercises are in the text. If not there, they will be handed out at least one week before they are due.

September 8Exercise 3-2 a-d;

September 22Exercise 4-2 a-e; 5-1

October 13Exercise 6-3 a-d; 7-1 a-b

October 27Exercise 9-3; 11-1 a-c

November 10Exercise 12-1a-c; 13-1 a-b

November 17Exercise 14-2 a-b

December 1Exercise 16-2; 17-1; 19-1 a-b

A / Course Overview / August 29
MPPA, Chapter 1
B. / Predicting and Evaluating Policy Consequences: Microeconomic Modeling and the Criteria of Efficiency and Equity / August 29, 31
MPPA, Chapters 2-3
C. / Model Specification: The Analysis of Welfare Policies (Efficiency Emphasis) / September 5, 7
MPPA, Chapter 4
D. / Are Local Governments Consumers or Consumption Bundles? Intergovernmental Grants (Equity Emphasis) / September 12, 14
MPPA, Chapter 5
E. / Measuring Benefits from Individual and Market Demand Curves: Consumer Protection / September 19, 21
MPPA, Chapter 6 (include section "…Consumer Protection Legislation")
T. Philipson and A. Jena, “Dividing the Benefits from Medical Breakthroughs,” The Milken Institute Review, First Quarter 2006, 8, No. 1, pp. 46-55 (available at with free registration)
*******QUIZ******* / September 28
F. / Uncertainty, Time and Bounded Rationality
1. National Health Insurance, and Moral Hazard / September 26, October 3
MPPA, Chapter 7
2. Allocation Over Time and Bounded Rationality
MPPA, Chapter 8, pp. 278-299 /

October 5

G. / Technology, Production and Costs in Benefit-Cost Analysis-- A Public Employment Example / October 10, 12
MPPA, Chapter 9
H. / The Behavior of Supply Organizations
Profit and Non-Profit Firms: Hospitals
MPPA, Chapter 10 pp. 373-381 and Chapter 11 pp. 417-432 / October 17
I. / General Equilibrium and Tax Incidence / October 19, 24
MPPA, Chapter 12
****MID-TERM EXAMINATION**** / November 2
J. / Market Intervention for Specific Equity Purposes
1. Economic Rent and Apartment Rent Control
MPPA, Chapter 13 pp. 507-508, 514-542 ("Apartment Rent Control") / October 26
2. Ration Coupons and Vouchers: Allocating Gasoline During A Shortage
MPPA, Chapter 14
Joseph Stiglitz, “A New Agenda for Global Warming,” The Economists’ Voice, June 2006, 3, No. 7 (available online through the MELVYL system). / October 31, November 7
K. Public Goods: What's on Public TV, and Who Decides? November 9
MPPA, Chapters 15, 16
L. Externalities: Regulating Air Pollution November 14, 16
MPPA, Chapter 17
M. Limited Competition: Utility Regulation & Deregulation November 21
MPPA, Chapter 18, pp. 661-677.
Joskow, P., "Markets for Power in the U.S.: An Interim Assessment,” The Energy Journal, 27, No. 1, January 2006, pp. 1-37 (available online through MELVYL, EBSCO and Expanded Academic databases).
No Class Thanksgiving Holiday November 23
N. Allocation over Time: Natural Resources November 28
MPPA, Chapter 19
O. Information Asymmetry: The Case of Day Care November 30
MPPA, Chapter 20
SUMMARY December 5