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DRPS : Course Catalogue : School of Social and Political Science : Postgrad (School of Social and Political Studies)

Postgraduate Course: Economics of Public Policy (PGSP11308)

Course Outline
SchoolSchool of Social and Political Science CollegeCollege of Humanities and Social Science
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityNot available to visiting students
SCQF Credits15 ECTS Credits7.5
SummaryThe course applies economic reasoning to the analysis of public policy. It provides a toolkit for understanding key economic issues in public policy, in particular the rationale for and consequences of government intervention in the economy.

The course discusses a variety of economic techniques of policy appraisal, including cost-benefit analysis. The emphasis is mainly microeconomic, enabling an analysis of market failure and intervention in particular sectors of the economy. But the course also addresses the macroeconomic and international context and constraints on public policy, where it is important to understand how the various components of the economic system interact and determine its aggregate behaviour.

The course aims to show how economics is applied in practice, both through case studies and by engaging with practitioners who formulate and implement economic policy.
Course description Week 1: Introduction to some key concepts of economics (e.g. comparative advantage, moral hazard). Examples drawn from across the world, and with particular reference to public policy. The economist's approach to public policy.

Weeks 2/3 (i) The competitive economy: supply and demand, with applications to international trade. Elasticities of demand and supply. The role of the price mechanism. Analysis based on constrained choice.
(ii) Introduction to the analysis of economic welfare. Consumer and producer surplus. Efficiency, equity, and the fundamental theorems of welfare economics.
(iii) Analysis of intervention and regulation. Intervention in a competitive economy: taxes and subsidies, price controls, quotas and tariffs.
(iv) Welfare analysis of intervention. Winners, losers, and compensation criteria.
Case Study: vouchers versus subsidies in education.
Possible practitioner involvement: Government Economic Service.

Week 4: Market failure (i). Monopoly and imperfect competition. Oligopoly and game theory. The prisoners' dilemma. Welfare losses of monopoly. Competition policy
Case Study: picking winners? The Scottish Motor Industry.
Possible practitioner involvement: Scottish Enterprise.

Week 5: Market failure (ii). Externalities and public goods. The tragedy of the commons: overfishing, global warming.
Case Study: the decline in fish stocks.
Possible practitioner involvement: Sea Fish Industry Authority.

Week 6: Time, risk, and uncertainty.
(i) Intertemporal choice and the life-cycle approach. Discounting, present value, and investment choices. Hyperbolic discounting. Time inconsistency in economic policy and how to overcome it. (ii) Risk, incomplete information and market failure. Moral hazard and adverse selection in insurance, financial, and other markets.
Case Study: contagion in financial crises.
Possible practitioner involvement: Edinburgh-based investment house, Bank of England's agent for Scotland.

Week 7: Economic appraisal. Cost benefit analysis and other forms of appraisal.
Case studies: (i) appraisal of drugs in the NHS. (ii) ex-post analysis of the benefits of avoiding the Exxon-Valdez oil spill.
Possible practitioner involvement: Scottish Medicines Consortium.

Week 8: Poverty, economic inequality and mobility. How to measure inequality and mobility. Redistribution via the tax and benefit/welfare system; incentives and poverty traps.
Case Study: early intervention versus subsidising college education.
Possible practitioner involvement: Scottish Government Education Department

Week 9: The economics of environmental policy, with particular reference to carbon management. How to price carbon. Cost-benefit analysis of policy instruments for carbon management,
Case Study: European Union Emissions Trading Scheme .
Possible practitioner involvement: Office of Climate Change.

Week 10: Macroeconomic issues. 'Rules versus discretion' in economic policy. The benefits of tying your hands: central bank independence. Fiscal rules, golden and otherwise. Economic policy in open economies.
Case Study: Deficits and debt across the OECD countries.
Possible practitioner involvement: HM Treasury, Office of Chief Economist (Scotland).

Week 11: Round up and review, revisiting the issues and themes raised in Week 1. Appraisal of the economic analysis of public policy, and how it fits in with other approaches and methods.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Course Delivery Information
Academic year 2016/17, Not available to visiting students (SS1) Quota:  None
Course Start Semester 1
Course Start Date 19/09/2016
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 150 ( Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 147 )
Assessment (Further Info) Written Exam 60 %, Coursework 30 %, Practical Exam 10 %
Additional Information (Assessment) 20% MCQ (multiple choice question) mid term
30% Policy Report (1,200 words)
50% Final Exam, to include compulsory short answers, essays, and MCQs
Feedback Not entered
No Exam Information
Learning Outcomes
On completion of this course, the student will be able to:
  1. By the end of the course students should be able to demonstrate knowledge and understanding of:

    Knowledge and Understanding:
    - key principles of public economics
    - how economics analyses market failure
    - the economic rationale for intervention in the economy
    - the range of different forms of economic intervention
    - economic techniques of policy appraisal
    - the macroeconomic context and constraints of public policy
    - how economic analysis is applied in practice to the formulation and implementation of economic policy
  2. Cognitive Skills:
    Students will develop a range of cognitive skills
    - Critical analysis and assessment
    - Focussed and systematic reasoning
    - Summarising economic issues in economic policy
    - Exercising informed independent thought and critical judgement
  3. Key Skills:
    Students will develop a range of key skills:
    - Economic analysis and appraisal skills, including cost benefit analysis
    - Obtaining and processing information from a variety of sources
    - Communication skills
    - Problem framing and problem solving skills.
Reading List
(i) Students will be advised to buy a text book or books on economics principles, suitable to their background. Advice will be given at the beginning of the course.

(ii) More specialised texts, such as:
Current Issues in the Economics of Welfare, Barr and Whynes
Economics of the Public Sector, Connolly and Munro
The Economics of the Welfare State, Barr

(iii) Official publications, including guides to economic appraisal e.g.
The Green Book, (the UK government's HM Treasury guidance on appraisal and evaluation of all policies, programmes and projects)
OECD, Cost Benefit Analysis and the Environment,
The Stern Review (UK Treasury)
(iv) Accessible journal articles and books e.g.:
Mankiw and Yagan, Optimal Taxation in Theory and Practice, J of Economic Perspectives, 2009

Piachaud, D. The Definition and Measurement of Poverty and Inequality, Ch 6 by Barr, N and D Whynes, 1993

Atkinson, A. Bringing Income Distribution in from the Cold, Economic Journal, March 1997.

Metcalf Market-Based Policy Options to Control U.S. Greenhouse Gas Emissions, J of Economic Perspectives, 2009

Garber and Skinner, Is American Health Care Uniquely Inefficient? J of Economic Perspectives, 2008

Hahn and Tetlock, Has Economic Analysis Improved Regulatory Decisions? J of Economic Perspectives, 2008

Currie and Gahvari, Transfers in Cash and In-Kind: Theory Meets the Data, Journal of Economic Literature, 2008
Additional Information
Graduate Attributes and Skills Not entered
KeywordsNot entered
Course organiserProf Simon Clark
Tel: (0131 6)50 3850
Course secretaryMr Lee Corcoran
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