Executive

Education School of Public Policy & Governance

How To Think Like An Economist: Economic Tools for Policy Makers The School of Public Policy & Governance (SPPG) at the University of Toronto has developed a third module 1 in its Executive Education portfolio that provides instruction on How to Think Like an Economist. It is aimed at mid-to-senior level public servants without formal economic training who would benefit from practical insight regarding the application of economic thinking to contemporary policy problems. Its central objective is for participants to understand empirical evidence and make associated policy choices that are informed by both economic models and data. This two-day seminar will be co-taught by Don Dewees (Professor Emeritus of Economics and Law at the University of Toronto) and Michael Baker (Professor of Economics at the University of Toronto). The first half-day of this short course will introduce participants to the basics of economic thinking and discuss the key features of economics that apply to public policy analysis and decision-making. These fundamentals are: Tradeoffs, opportunity cost, the margin, incentives, correlation & causation, trades, market behavior, the relationship between governments and markets, productivity, and supply & demand behavior. Following this overview of the economic essentials, the course will survey relevant examples of policy statements on which economists generally agree and use the ten fundamentals to appreciate why this consensus exists. On the first afternoon and the second day, the class will analyze three case studies that highlight on-the-ground issues of policy-making with economic principles, focusing specifically on how economists use evidence to inform policy decisions. One case study will focus on policy making for children (early childhood education), one will focus on environmental problems and policies including the use of emissions trading as a policy instrument and the third will focus on the minimum wage. This seminar does not assume a technical background, however, participants should have significant policy experience to inform their participation in group discussions. Though the seminar capitalizes on early childhood education, environmental protection and gender differences in the labour market, it is not targeted at practitioners who engage with those portfolios. Rather, it applies economic theory and tools to three popular areas of social policy in an accessible way that allows for shared classroom learning. Classes are limited to 40 participants each and are offered on campus at the University of Toronto. A certificate of completion is offered directly following the course.
Policy Professionals.
1 Other present offerings are: Risk Analysis for Public Servants and Financial & Economic Analysis for

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Executive Education School of Public Policy & Governance

Format This session will take place in four parts: a) Introduction session with 10 basic economic ideas b) Case studies: Environment A and B c) Case study: Minimum wage d) Case study: Early childhood education Dr. Michael Baker Michael Baker is a Professor in the Department of Economics at the University of Toronto. He is also the Academic Director of the Toronto Region Statistics Canada Research Data and a Research Associate of the National Bureau of Economic Research. His current research focus is on how economic decisions affect the development trajectories of young children. He has also completed research on gender differences in economic outcomes, aging, immigration and labour market standards. In the past year he delivered the 2011 Innis Lecture, Universal Early Childhood Interventions: What is the Evidence Base, at the Canadian Economics Association annual meetings. Professor Baker received his B. Commerce from the University of Toronto, his M.A. from York University and his Ph.D. from the University of Michigan. Dr. Donald Dewees Donald Dewees is a Professor Emeritus of Economics and of Law at the University of Toronto. He holds an engineering degree from Swarthmore College, an LLB from Harvard and a PhD in Economics from Harvard. He served as Director of Research for the Ontario Royal Commission on Asbestos, as Vice-Dean and Acting Dean of the Faculty of Arts and Science of the University of Toronto and as Interim Chair of Economics. During 1998 he served as the Vice-Chair of the Ontario Market Design Committee, which advised the government on the introduction of competition into the electricity market in Ontario. Professor Dewees' principal research and teaching interests include Law and Economics, Environmental Economics and Environmental Law. His publications include five books principally in the environmental area and many journal articles in both economics and law. His recent research includes studies of the design of transferable permits for pollution control and environmental and pricing issues related to electricity. University of Toronto
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Executive Education School of Public Policy & Governance

Appendix A - Application #1: Early Childhood Education In this application we examine how the tools of theoretical and applied economic analysis can inform policies for promoting the well being of children. What are the issues? a) What are the Objectives of Policy a. Promoting child development b. Promoting gender equality c. Promoting work/life balance b) Advocacy a. Heckmans case for investments in children b. Mustard and McCain: The Early Years Study c) Why look at this economically? a. An important input to childrens development is an economic decision: parents work post birth b. Economics provides a clear framework for government action: market imperfections Theory: a) The economic model of investing in human capital a. The role of prices and opportunity cost b. Who should pay: the individual or society? c. Market imperfections: externalities (can your neighbour make you more productive?) and market failure (what is my collateral for a student loan?) b) The economic model of the decision to work a. The base model b. The fixed costs (i.e. childcare) of work Does policy promote childrens development? a) Ranking evidence a. Can we? b. Controlled experiments, natural experiments and observation. b) What we know about targeted policy a. The Perry Preschool Project c) What we know about universal policy a. Maternity leave policy, universal childcare programs and preschool d) Using evidence to make policy a. Universal versus targeted policy University of Toronto
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Executive Education School of Public Policy & Governance

In this application we see how the tools of theoretical and applied economic analysis can shed light on the impact of minimum wages in the labour market. What are the facts? a) What are the minimum wages in Canada? How do they relate to average wages? b) Who works for the minimum wage? c) How could minimum wages alleviate poverty? d) How does a minimum wage income compare to others sources of support for low-income individuals and families? Theory: a) Supply and demand. Price ceilings and price floors. b) The predicted effect of a minimum wage c) The predicted impact on income shares d) Do other models give different predictions? Monopsony Measuring the impact of a minimum wage: a) Measurement a. What are the ideal conditions for measurement? b. What are the actual conditions? b) Evidence from the U.S. labour market. c) Evidence from the Canadian labour market. d) How can we reconcile conflicting evidence? Appendix C Application #3: Economics and the Environment In this application we see how economic principles can be used to develop and evaluate policies for protecting the environment, with particular attention to emission trading and effluent charges. Environmental Basics How should we decide how much environmental protection we want or need and the best regulatory form to achieve that result? 1. Goals of environmental policy a. Work toward a sustainable or satisfactory or healthy environment b. Balance environmental goals against public costs (taxes) and private costs (operating costs, price increases). University of Toronto
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e) Where should we go on the margin? a. Policy deepening versus policy widening Appendix B - Application #2: The Minimum Wage

Executive Education School of Public Policy & Governance

c. Balance near-term costs against long-term benefits. d. Public perceptions (?) 2. How much environmental protection is enough? a. How do we balance costs and benefits? b. What role does marginal analysis play and why? c. How can we put a value on something priceless like the environment? 3. How do we maximize the achievement of an environmental goal per dollar spent pursuing a policy? a. Measuring environmental quality and achievements. b. Measuring costs of alternative policies c. Strategies to ensure that we maximize the environmental goal/$ or minimize the cost of achieving the goal. 4. How can we value the environment? a. Is it morally wrong to put a dollar value on environmental quality? b. What techniques are available for determining values? c. How good are the available techniques? d. If we can/will not put a dollar value on environmental quality what do we do instead? 5. (optional) What is the relationship between economic growth and the environment? a. Comparing nations, are high income nations better environmentally? b. Historically has increased income per capital been related to better or worse pollution and why? c. How can we choose better or worse environmental performance in a growing economy? Environmental Policy Design: Pricing the Environment 1. Prices influence behaviour, they act as incentives. a. Markets alone do not control pollution because (in most cases) they create no incentive to control pollution. b. Regulations can try to compel behaviour such as pollution control. c. Imposing a price for polluting can control pollution because now it is expensive control may be less costly. 2. From regulation to pricing a. Traditional regulation as a zero price mechanism. b. You can start with traditional regulation and add emissions trading to give firms flexibility, save money. c. You can start with emissions trading to achieve the regulatory goal cap and trade. 3. What are cap and trade systems and why are they attractive? a. Explanation of various cap and trade systems in theory and practice. b. Theoretical advantages of cap and trade over regulation. c. Actual experience with cap and trade, US, Canada. 4. How do effluent charges (e.g. carbon tax) achieve environmental goals? a. Theory of operation of effluent charges and their advantages. b. Rationale and design of effluent charges. University of Toronto
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Executive Education School of Public Policy & Governance

c. Experience in US and Europe with effluent charges and what we learned. d. How would we make the policy choice between traditional regulation, cap and trade and effluent charges for controlling pollution?

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