SHOOTING IN THE DARK

HOW COMPUTER SOFTWARE CAN IMPROVE THE QUALITY OF PUBLIC POLICIES

The Engineering Economist (Winter, 1995)

Kenneth Acks

Copyright 1995

Damage Valuation Associates

22 East Olive Street

Long Beach, New York 11561

(516) 897-9728

ABSTRACT

Most policy debates are fought largely with volleys of ideological slogans rather than evaluations of the costs and benefits arising from alternative proposals. The failure to measure costs and benefits creates a vacuum, rendering the political process more susceptible to manipulation by special interests. A lack of information regarding costs and benefits can also inhibit negotiations for mutually beneficial compromises. The failure to employ cost benefit analysis arises from the expense and time involved in measuring complicated phenomena. In addition, when decision makers do employ cost benefit analysis, they often omit significant gains and losses due to difficulties encountered in collecting information. In order to remedy these difficulties policy makers must make better use of computer software, which is currently being developed.

I. THE PROBLEM

Most policy debates are fought largely with volleys of ideological slogans and isolated facts rather than evaluations of the costs and benefits arising from alternative proposals. In the crime debate, for example, liberals reflexively argue for prevention, while conservative knees jerk with ever-harsher calls for punishment. Individuals tend to support "Three Strikes and Your Out" and other proposals because they are frustrated, and want revenge for the damages caused by criminals--not because the benefits of taking career criminals out of circulation exceed the costs of incarceration and other expenses.

Both sides in the crime debate offer persuasive statistics. Liberals point out that the U.S. has the highest rate of both crime and of incarceration among the industrialized nations [1]; that since 1973 imprisonment has risen fourfold, while overall crime has decreased only 6 percent and violent crimes are up 24% [2]; and that one-fifth of the 90,000 Federal prison inmates are low-level drug offenders with no current or prior violence or previous prison time [3]. Conservatives note that between 1987 and 1991 prisoners released early in Florida committed 25,000 new crimes including nearly 5,000 violent crimes and 346 murders [4]); that within three years of sentencing nearly half of all probationers had to be put behind bars again for a new crime; and that "tripling the prison population from 1975 to 1989 reduced potential violent crime in 1989 alone by almost 400,000 rapes, murders, robberies and severe assaults [5]." Yet such statements and statistics are essentially meaningless without knowledge of the degree to which programs can be expected to cut crime, the benefits of these reductions, and the costs of the programs--based upon past experience. Instead, concerned citizens should ask: How much can we expect an additional police officer, or a prison bed, or a youth program to cut crime relative to their respective costs?

Similarly, environmentalists fight for more and more regulations, while industry automatically counters with arguments that businesses and jobs will be destroyed. Yet, how many advocates or decision makers know the degree to which pollution controls will reduce deaths from lung cancer, or the suffering of bronchial asthmatics, or the minor throat irritations which afflict most of us? Even when armed with that knowledge, how often do combatants consider what people would be willing and able to pay for reducing these maladies relative to the expected costs to ameliorate the problems? Similarly, funds are allocated to education, to transportation, and to welfare based upon political power, ideological preconceptions, and emotional appeals rather than upon formal tallies of the costs and benefits. No one knows the relative benefits and costs of monies devoted to different categories of expenditures.

The failure to measure costs and benefits leads to debates conducted in terms of absolute principles rather than real world complexities. Despite the complexity of the issues each side comes to the struggle armed with inexhaustible supplies of certitude and righteous indignation. In addition, each side of any debate cites "studies" in support of their positions--creating a cloud of confusion and mistrust in voters' minds. Advocates of a particular position often pay for these studies, and ensure that they receive the desired results. Many excellent studies, on the other hand, are buried deep in the vaults of a government bureaucracy, or in an obscure technical journal, never to see the light of day. No mechanism exists to ascertain general tendencies from a broad sample of all studies. The inability to measure costs and benefits creates a vacuum, rendering the political process more susceptible to manipulation by special interests with superior resources.

A lack of information regarding costs and benefits can also inhibit negotiations for mutually beneficial compromises. Give and take is difficult when neither side knows what the other is giving or taking.

The failure to employ cost benefit analysis arises in part from the expense and time involved in measuring complicated phenomena. Whereas the private sector can examine prices and profits to measure the costs and benefits of its actions, the public sector can rarely quantify all significant gains and losses resulting from alternatives. Although economists have developed excellent theoretical tools to evaluate costs and benefits (see [6], [7], [8], [9], [10], [11], [12]) few policy makers implement these concepts. Given the heterogeneity of policies, costs, and benefits, governments seeking to comprehensively measure impacts must typically spend tens or hundreds of thousands of dollars, and wait months or years for the results. Policies are thus based upon feelings and hunches--while taxpayers and potential beneficiaries suffer the consequences.

In addition, when decision makers do employ cost benefit analysis, they often omit significant gains and losses due to difficulties typically encountered in collecting information. For example, one of the greatest costs of crime--fear--is rarely considered in analyses of criminal justice policy. The failure to measure crucial elements can render conclusions implausible. Furthermore, analysts also often overlook information from some studies in an age when data expands exponentially.

The above deficiencies are particularly costly in these times of budget deficits and cutbacks.

II. THE SOLUTION

In order to remedy the above difficulties policy makers must make better use of technologies that have revolutionized other industries. Several private firms and government agencies have begun to develop computer software designed to automate the cost benefit analysis process. However, current models are limited in scope. Given the scarcity of public funds, and the damage produced by faulty policies, government should devote more resources to improving existing systems.

The benefits of applying modern technology to public policy analysis can be illustrated by examining one such software program. This program is a modular menu driven computer program that produces several tallies of costs and benefits arising from government policies. Tallies are based totally upon data from previously published studies. It can significantly reduce the time and money needed to estimate costs and benefits, while increasing the scope and accuracy of these analyses. A decision maker can change assumptions, and add costs or benefits through a simple spreadsheet format. Cost benefit systems must be flexible because policies are extremely diverse and no programmer can foresee all the consequences of all policies. The system can also serve a bibliographic function--rapidly leading analysts to sources of information.

The system asks the user to select:

1) A Policy Area (such as CRIME, ENVIRONMENT, or HOUSING),

2) A Function To Be Performed (e.g. VIEW/ALTER COST BENEFIT TALLIES, or

ENTER DATA),

3) The Amount Of The Proposed Expenditure,

4) The Geographic Region Under Analysis,

5) A Specific Policy (such as HIRING POLICE or INCREASING THE SEVERITY

OF SENTENCES).

If VIEW/ALTER COST BENEFIT SUMMARIES is chosen, the system presents the policy maker with several possible scenarios. The scenarios provide different means to estimate costs and benefits. For crime the rows of cells within the scenarios:

1) Present statistical data (coefficients) from studies showing the extent to which a policy such as hiring police tends to produce an effect, say increased arrests or convictions.

2) presents coefficients found in studies measuring the extent to which the change in the effect (increases in arrests or convictions) changes the level of a disamenity (e.g. crime), and

3) multiplies (1) and (2) resulting in the extent to which a policy cuts the disamenity

4) multiplies the results in (3) by estimates of the costs imposed on society by the disamenity (crime), which comprise the benefits of a policy.

5) adds in the effects of government spending multipliers

6) compares the benefits estimated above to costs

The system generates several alternative scenarios for measuring costs and benefits. For crime, a second set of scenarios presents coefficients from studies that measure the effects of law enforcement expenditures directly upon crime. A third set of scenarios displays the effects of policies upon convictions, and then of convictions upon crime. This system generates additional cost benefit tallies by measuring the costs of crime in different ways, including a) direct dollar losses, b) changes in property values, c) wage premiums demanded by employees faced with disamenities, and d) willingness to pay for reductions as expressed in surveys. Further scenarios arise from different disaggregation schemes, by which the software shows the effects of policies upon different types of crime or pollutants. Because theorists have devised several different ways to measure costs and benefits no cost-benefit program can produce final answers. These programs must be considered scenario generators.

The chart below describes the general operation of the system.

As Figure 1 shows, the system:

1) contains a database filled with coefficients and other information derived from previous studies.

2) converts the units of each study into a common base.

3) places the data from studies that investigate the same phenomena together by attaching a variable name to each result in the database.

4) derives a single representative (weighted average) number for each variable by weighting the elements of the studies. The system provides many potential weighting schemes, and allows the user to modify the weights. One scheme attaches greater significance to studies conducted in more recent years. Other weights are based on the apparent quality of the study, and the plausibility of results.

5) produces a series of potential cost benefit scenarios looking at causes and effects, as well as costs and benefits, in different ways based on the weighted variables.

A printout summarizing the results derived from one set of inputs is presented on the following page.

NOT CURRENTLY AVAILABLE IN HTML

The program thus enumerates the costs and benefits expected from a given policy. However, this system is a prototype and government should expand computerized cost benefit analysis with respect to policies covered as well as the number of costs and benefits considered.

Policy researchers have criticized cost benefit analysis, and computerized cost benefit analysis on several grounds. Many liberals feel that Cost-Benefit Analysis neglects values and income distribution, and that it is inherently biased against their positions [13]. However, a computerized system can help specify distributional effects and allow policy makers to target distributional goals. By specifying increased income for the poor as a benefit normative values can be incorporated. Cost Benefit Analysis is value neutral, but it can be adapted toward other goals. Others have attacked C-B Analysis for omitting key benefits. Obviously computerized systems address this concern.

Many supporters of cost-benefit analysis have expressed skepticism about computerized C-B Analysis systems. They note that policies are so heterogeneous that it is impossible to computerize the process. To some extent they are correct. The goal of computerized systems should be to save time and money by providing rough first guess estimates--not to produce final answers. This goal can be, and has been, achieved, as the software provides bibliographic leads, and results are in a spreadsheet format that users can modify easily.

III. CONCLUSION

In conclusion, it is time to bring the policy making process and political debate into the final decade of the 20th century. Today's computer technology can significantly improve the quality of public policies, but government should devote more attention and resources to improving existing systems. The benefits of investing in computerized cost-benefit analysis appear to far outweigh the costs.

REFERENCES

Anderson, Lee G. Benefit-Cost Analysis: a practical guide Lexington, Mass.: Lexington Books, 1977

Bennett, John "Reno Nomination Fuels Crime and Punishment Debate", Herald News Joliet Illinois February 28, 1993

Campen, James T. Benefit Cost, and Beyond: The Political Economy of Benefit-Cost Analysis, Cambridge, Mass.: Ballinger Publishing Co., 1986

Clear, Todd R., "Tougher Is Dumber", The New York Times, December 24, 1993

DiIulio Jr., John J. Letter to The New York Times, June 24, 1994

Gramlich, Edward M. A Guide to Benefit-Cost Analysis, 2nd Edition, Englewood Cliffs, N.J.: Prentice Hall, 1990

Halvorsen, Robert and Ruby, Michael Benefit-cost Analysis of Air-Pollution Control, Lexington, Mass.: Lexington Books, 1981

Kolb, Jeffrey A. and Scheranga, Joel D. "Discounting the Benefits and Costs of Environmental Regulations", Journal of Policy Analysis and Management" Vol. 9 No. 3 381-390, 1990

Layard, Richard and Glaister, Stephen Cost-Benefit Analysis, Cambridge University Press, Cambridge, 2nd Edition, 1994

Mishan, Edwin J. Cost-Benefit Analysis, New York: Simon and Schuster, 1964

New York Times Editorial, "Ms. Reno and the Jail Glut", February 12, 1994

Rosenthal, A.M. "Prisons Save Lives", The New York Times, June 3, 1994 A27

Sassone, Peter G. and Schaffer, William A. Cost-Benefit Analysis: A Handbook New York: Academic Press, 1978