Policy Instruments and things governments can do Giancarlo Vecchi

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SCHOOL OF MANAGEMENT
Policy Analysis 2022 – Policy Design in practice
LECTURE 5 – Policy Instruments and things
governments can do
Giancarlo Vecchi

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Policy instruments are techniques of governance
that, in one way or another, involve the
utilization of State authority or its conscious
limitation
(M. Howlett 2005)
Giancarlo Vecchi

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A first simple classification
high
Stick
Regulation
Carrot
Incentives and disincetives
Sermons
Persuasion
low
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• Regulation = prescribe or proscribe
behaviours/conducts, calibrate incentives or
disincentives, shaping preference changes (also
trough penalities)
• Examples
- rules that limits the environmental pollutions
- laws against child labour
- standards definition, eg quality of food,
devices, etc.
- zoning in town planning
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• Incentives/disincentives: instruments that
motivate/encourage actors to behave/stop to
behave in a certain way
• EXAMPLES: cash rewards/penalties,
bonuses/tickets, income and profits. However, it's
not all about money. External incentives can
include such things as peer recognition, fame,
social status and power.
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• Sermons: narratives that try to shape the actors’
behaviours through moral suasion, education and
training, communication campaigns, …
• Examples: use of experts to explain the
effectiveness of the vaccines against Covid;
training courses to improve the compliance on
innovations; etc.
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See Video
https://pt.coursera.org/lecture/greening-theeconomy/policy-instruments-and-incentivessgv0s
Giancarlo Vecchi

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2. Christopher Hood: NATO Model
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NATO Acronym:
N = Nodality
A = Authority
T = Treasure
O = Organization
cfr: Hood and Margetts, The tools of government in
the digital age
Giancarlo Vecchi

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2. Christopher Hood: NATO Model
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Nodality = the property of being in the middle of
a social network. It provides governments (and
every actor) to detect information and build a
panoramic picture of a phenomenon or an
actors’ arena, to reach and maintain citizen
trust.
Broadcast information and warnings, targeted
messages (the nodality can be used to shape
individuals’ behaviour, influencing them
through information or disinformation - using
specific narratives or sermons)
Giancarlo Vecchi

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2. Christopher Hood: NATO Model
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Authority = Legal authority: laws, regulations,
norms coercively enforced (is the ability to
command and prohibit; commend and permit;
through formal or recognised procedures and
symbols).
Detector: Legal requirements to report
information, data, statistics (eg. Obligation to
notify, inspections, interrogations, etc.)
Effector: Prohibitions, tax raising, requisitions
(certificates, permits, constraints, enablement eg contracts, etc.)
Giancarlo Vecchi

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2. Christopher Hood: NATO Model
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Treasure = anything that can be freely
exchanged (moneys and other tools)
Detector: Tax-funded research and
investigations, rewards, offering positive
incentives (eg. for information, for specific
behaviours, etc.)
Effector: subsidies, grants, incentives,
money/services/goods transfers (welfare
services and benefits)
Giancarlo Vecchi

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2. Christopher Hood: NATO Model
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Organization =stock of land, buildings,
equipment, personnel
Detectors: Maintaining an information collection
network (eg. physical or digital devices to
information-gathering)
Effectors: capacity to implement policies in the
different contexts (storage and custody,
services delivery, transportation and
distribution, processing, large treatments, etc.)
Giancarlo Vecchi

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2. Renewing Hood model: Dunleavy 2016
–
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2. Renewing Hood model: Howlett 2000
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• Howlett underlines that policy instruments can
be “Substantive” or “Procedural”
• Substantive: instruments that have designed
to directly or indirectly affect the production,
consumption and distribution of different kinds
of goods and services in society
• EG: regulation, subsidies, good provision, etc.
Giancarlo Vecchi

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2. continue: Howlett 2000
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• Procedural: instruments that affect production,
consumption and distribution processes only
indirectly, if at all, and instead are concerned
with altering aspects of a government’s own
workings; moreover, the goal is to manipulate
the behaviour of citizens and/or companies
• Eg: use participation to improve trust in
government; creating an evaluation
committee including citizens to overcome
conflicts; reorganization of institutions; etc.
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2. INSTRUMENTS MIX…
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.In the current debate, scholars underline that
policies are based on a mix of instruments.
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3. DESIGNING WITH INSTRUMENTS
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A LIST OF INSTRUMENTS WITH
DEFINITION AND REASONS TO USE THEM
Giancarlo Vecchi

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3.1. Good & services provision
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Definition
• Delivery or withholding of good or/and services
by government employee, through public
agencies
• Delivery or withholding of good or/and services
through private or third sector organization, or
hybrid agencies (public-private partnership) under
the control of public institutions
• EG public transport, health system, railway,
waste collection & disposal, water supply, crime
control, etc
Giancarlo Vecchi

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3.1. Goods & Services provision/b
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a) What we might to do:
Add a new service
Expand an existing service
Organize outreach to potential beneficiaries not now
using the service
Better customize an existing service to a particular
subpopulation
Provide vouchers for a particular service so that people
may choose from an array of competitive service
providers
Link two or more existing service delivery systems to
take advantage of potential synergies or to make life
easier for service recipients
Giancarlo Vecchi

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3.1. Goods & Services provision/c
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• Reduce service users’ difficulties in accessing and
using the service by
a. going online
b. computerizing intake and eligibility processes
c. simplifying forms
d. collocating services (with precision)
e. permitting appointments by phone
f. facilitating personal inquiries and complaints
g. improving payment options
h. co-designing services, involving experts and
recipients
Giancarlo Vecchi

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3.1. Goods & Services provision/d
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b) Why?
Consider two different rationales:
• Desired services are those that people want such as
parks and good schools.
• Paternalistic services are those that people may or
may not want but that outsiders want them to have
because there is some potential payoff to the
outsiders (e.g., rehabilitative services for the
mentally ill, organized shelters for the homeless, job
search services for individuals on welfare).
Giancarlo Vecchi

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3.2. Social & Economic Regulation
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Definition
Rules that identify permissible and impermissible
activities on the part of individuals, firms or government
agencies, along with accompanying sanctions or
rewards or both.
Control of prices, output and/or the entry and exit of
firms in and industry.
Eg: environmental pollution, unsafe working
environments, market competition, quality standards,
etc.
Giancarlo Vecchi

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3.2. Regulation/b
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a) What we might to do:
Add a new regulatory regime or abolish an old one
Write new standards or remove old ones
Tighten or loosen existing standards
Ban or prohibit something entirely
Improve the scientific and technical basis for writing
standards
• Close or open loopholes
• Add, train, or better supervise enforcement
personnel
Giancarlo Vecchi

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3.2. REGULATION/c
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(What we can do)
• Improve targeting of enforcement to catch bad
apples, or to
• increase deterrence, or to increase resource
efficiency
• Raise or lower the level of effective sanctions
• Tighten or loosen appeals procedures
• Change reporting and auditing procedures
• Add, subtract, or improve complaint mechanisms for
workers or the public
Giancarlo Vecchi

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3.2. REGULATION/d
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b) Why?
Different types of regulation:
• Social/protective regulation: To defend
consumers or workers, citizens, etc.
• To defend economic competition and control
monopolies and oligopolies (eg. cell phones,
broadband, etc.)
• To manage output and prices of natural
monopolies (eg. rail network, highway network,
airports, heavens, water services, electricity,
etc.)
Giancarlo Vecchi

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3.3. Taxes, fiscal system & public
expenditure
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Definition: This includes deciding how to tax, how
much money to raise, on which policy areas (crime,
health, education) to spend and the balance between
current (e.g. the wages of doctors) and capital (building
a new hospital) spending
Giancarlo Vecchi

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3.3. Taxes etc.
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a) What we might to do:
• Add a new tax or abolish an old tax
• Change the tax rate or the tax base
• Improve collection organization and processes
• Tax a negative externality
b) Why?
Need of financial resources for some purposes,
problem in the market structure (eg, oligopolies)
• But: too many taxes can inhibit economy, etc.
Giancarlo Vecchi

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3.4. SUBSIDIES
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Definition: Economic incentives, such as subsidies to
farmers or tax expenditure on certain spending (giving
to charity, buying services such as health insurance).
A subsidy or government incentive is a form of financial
aid or support extended to an economic sector
(business, third sector, or individual) generally with the
aim of promoting economic and social policy
Subsidies come in various forms including: direct (cash
grants, interest-free loans) and indirect (tax breaks,
insurance, low-interest loans, accelerated depreciation,
rent rebates)
Giancarlo Vecchi

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3.4. SUBSIDIES/b
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a) What we might to do:
Add a new one OR Abolish an old one
Change the level
Change the marginal rate
Introduce, abolish, or change a formula by which
subsidies are allocated
• Modify the conditions of eligibility
• Loosen enforcement or Tighten enforcement
Giancarlo Vecchi

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3.4. SUBSIDIES/c
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b) Why?
Incentive effects. Subsidies and grants are often used
to stimulate activities that neither markets nor
nonprofit or voluntary action appears to produce in
adequate quantity or quality. They also play
important roles in the system of intergovernmental
relationships—when one level of government wishes
to encourage another level of government to do
certain things—and in the system of relationships
between governments and nonprofit organizations.
Giancarlo Vecchi

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3.4. SUBSIDIES/d
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Wealth effects. Grants and subsidies also transfer
resources to people or organizations or levels of
government in order to make the recipients wealthier.
Some design problems. It often happens that you want to
create incentive effects but not wealth effects, or vice
versa. For instance, you may wish to make poor people
wealthier via grants and subsidies but without diminishing
work incentives. Or you may wish to encourage
businesses or universities to undertake more research
and development of a certain kind but without unduly
enriching them or allowing them to use the subsidies
inefficiently.
Giancarlo Vecchi

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3.5. INFORMATION
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Definition: Public information is a tool to eliciting
desired people behaviours and policy outcomes.
Institutions inform an audience of target actors about a
policy issue or pattern of behaviour to influence what
people think, think or believe when they engage in
target behaviour.
Giancarlo Vecchi

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3.5. INFORMATION/b
a) What we might to do:
Require disclosure
Direct government rating or certification
Standardize display or format
Simplify information
Subsidize production of information
Subsidize dissemination of information
Giancarlo Vecchi
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3.5. INFORMATION/c
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b) Why?
• Information production, dissemination, and
validation may be suboptimal due to the declining
average (and sometimes marginal) cost nature of
the activity. Information consumption may be
suboptimal due to the hidden costs of consumption
(such as time spent reading or hearing or
interpreting or sifting or verifying).
• Blame avoidance and maintaining nodality in the
information network, avoiding fake news, etc.
Giancarlo Vecchi

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3.6. EDUCATION, CONSULTATION,
PARTICIPATION
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Definition: Public education and advertising are tools
to highlight the opportunities or/and risks to certain
behaviours; to improve social awarness regarding
public problems and solutions; to improve the
effectiveness and efficiency of public services, to
improve trust in istitutions, etc..
Giancarlo Vecchi

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3.6. Education, consultation, participation/b
a) What we might to do:
• Warn of hazards or dangers
• Raise consciousness through exhortation or
inspiration
• Provide technical assistance
• Upgrade skills and competencies
• Change values, improve trust
• Professionalize the providers of a service through
training or certification or licensing
• Learning from services users
Giancarlo Vecchi

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3.6. Education, consultation,
participation/c
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b) Why?
• People may be unaware of a problem or an
opportunity. They may be careless or unfeeling.
There may be too many untrained or unskilled
people in jobs demanding too much responsibility.
• Participation through co-production and coevaluation can improve mutual learning between
citizens and institutions, and improve trust
Giancarlo Vecchi

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3.7. FINANCING AND CONTRACTING
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Definition: is a business arrangement between a
government agency and a private entity (for profit or
non-profit) in which the private entity promises, in
exchange for money, to deliver certain products or
services to the government agency or to others on
the government’s behalf.
Giancarlo Vecchi

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3.7. FINANCING AND CONTRACTING/b
What we might to do:
Create a new (governmental) market
Abolish an existing (governmental) market
Alter reimbursement rates
Change the basis for reimbursement
Lease governmentally held resources
Alter user fee structure
Giancarlo Vecchi
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3.7. FINANCING AND CONTRACTING/c
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Redesign bidding systems
Change contract enforcement methods
Furnish loans, Guarantee loans, Subsidize loans
Set up a public enterprise
Dismantle a public enterprise
“Privatize” a hitherto public enterprise
Modify insurance arrangements
Change procurement practices
Giancarlo Vecchi

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3.7. FINANCING AND CONTRACTING/d
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b) Why?
• Capital and/or insurance markets may be working
inefficiently.
• The governmental contracting and procurement
machinery may not be operating well—it may be too
rigid, or too corrupt, or too expensive, or too slow.
Giancarlo Vecchi

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3.8. THE STRUCTURE OF PRIVATE RIGHTS
Definition: the rights of a person or other entities to seek
support, compensation or injunctive relief through the
judicial system for harm caused by the negligence or other
wrongful conduct of others
What we might to do:
• Property rights, Contract rights and duties
• Liability and duties
• Family law
• Constitutional rights
• Labour law, Corporate/Civil law, Criminal law
• Dispute-resolving institutions other than litigation and
courts
Giancarlo Vecchi

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3.8. THE STRUCTURE OF PRIVATE
RIGHTS/b
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b) Why?
In recent years, two of the biggest issues drawing the
attention of policy analysts and economists
interested in legal institutions are:
• the economically efficient incidence of risk - it should
fall on the party that can manage it at the lowest
social cost;
• and the costs involved in administering any
adjudicative system (judicial or not).
In addition to these economic matters, there is also
concern about compensation for harm.
Giancarlo Vecchi

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3.9. THE FRAMEWORK OF ECONOMIC
ACTIVITY
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What we might to do:
• Encourage competition or Encourage concentration
• Control prices and wages (and profits) or Decontrol
prices and wages (and profits)
• Control output levels or Decontrol output levels
• Change tax incentives up or down
• Provide public jobs or Abolish public jobs
Giancarlo Vecchi

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3.9. THE FRAMEWORK OF ECONOMIC
ACTIVITY/b
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b) Why?
Supporting more governmental intervention. On the
supply side, there may be monopoly or oligopoly
problems. On the demand side, consumers may be
relatively nonmobile or otherwise vulnerable to
exploitation— and the same may be true of workers.
Supporting less governmental intervention. You may
decide that political forces have captured the government
administrative apparatus and perverted the intent, or that
the information costs to government entailed in doing the
job well are simply too high, or that technology has
changed and made an older form of governmental
intervention less appropriate or effective or efficient.
Giancarlo Vecchi

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3.10. PUBLIC AGENCY BUDGET
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a) What we might to do:
Add a lot to the budget
Add just a little to the budget
Hold the budget at last year’s level
Cut the budget a little
Cut the budget a lot—to the point of beginning to
terminate the agency
• Shift allocations from one budget item to another
Giancarlo Vecchi

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3.10. PUBLIC AGENCY BUDGET/b
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Why?
We may want to adjust an agency’s budget according
to whether we like what it does
In addition, how we manipulate an agency’s budget
sends political signals about the degree of
satisfaction or dissatisfaction with the agency’s
performance and so may be thought to have
incentive effects as well as wealth effects.
It is not easy to use the budget as a means of creating
incentive effects, however.
Giancarlo Vecchi

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3.11. BUREAUCRATIC AND POLITICAL
REFORMS
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a) What we might to do:
Many interventions available: they range across such
activities as reorganizations, replacing top
supervisory personnel, improving information
systems and digitization, raising wages and salaries,
introducing/extending a federalist system, etc.
b) Why?
The main reason is to introduce, legitimate and
improve the power (or the opposite) of an actor and
to legitimate a specific problem definition.
Giancarlo Vecchi

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4. A SUMMARY (Ramesh and Howlett
high
• Direct provision
• Public companies
Coercion
instruments
Intervent
ionist
State
• Regulation
• Prisons, Police, Military forces
• Taxes
• Property rights auctions
Mixed
instruments
• Subsidies & contributions
• Information & education
• Markets
Voluntary
Instruments
• Voluntary Organizations, NGO
• Families & communities
low
Giancarlo Vecchi
Minimal
State

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5. REMEMBER : INSTRUMENTS ARE
NOT NEUTRAL
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Public policy instrumentation reveals a (fairly
explicit) theorization of the relationship
between the governing and the governed:
every instrument constitutes a condensed form
of knowledge about social control and ways of
exercising it and
An instrument constitutes a device that is both
technical and social
Giancarlo Vecchi

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5. REMEMBER : INSTRUMENTS ARE
NOT NEUTRAL/b
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Instruments at work are not neutral devices: they
can produce specific effects, independently of
the objective pursued (the aims ascribed to
them); eg:
• inertia effect
• a particular representation of the issue at
stake,
• a specific problematization of the issue,
• the concretization of a specific theory
Giancarlo Vecchi

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5. REMEMBER : INSTRUMENTS ARE
NOT NEUTRAL/c
They partly determine/influence the behaviour (and
the expected behaviour) of the actors (eg: users)
They will eventually privilege certain actors and
interests, and exclude others
They constrain the actors, while offering them
possibilities
They drive forward a certain representation of
problems.
The instruments partly determine what resources
can be used and by whom. Like any institution,
instruments allow forms of collective action to
stabilize, and make the actors’ behaviour more
predictable and probably more visible.
Giancarlo Vecchi

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See Video
https://www.youtube.com/watch?v=8Mj88Mqma
yI
Public Policy Instruments: Types, Theories of
Choice, and Procedural Tools
Dr. Michael J. Prince
Giancarlo Vecchi