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A #thread on opportunity cost neglect in public policy and specifically, foreign policy. @psarthak19 & I have an All Things Policy Podcast episode on this today. https://ivmpodcasts.com/all-things-policy-episode-list/2020/9/16/ep-414-why-neglecting-opportunity-costs-leads-to-bad-policy
We discussed this interesting paper which confirms that:
1/ people make opportunity cost trade-offs in private consumption BUT fail to do so while thinking of public spending
2/ people avoid trade-off thinking in the health domain. https://www.sciencedirect.com/science/article/pii/S0167268119303956
1/ people make opportunity cost trade-offs in private consumption BUT fail to do so while thinking of public spending
2/ people avoid trade-off thinking in the health domain. https://www.sciencedirect.com/science/article/pii/S0167268119303956
3/ This opportunity cost neglect is also observed amongst actual decision-makers but to a lesser extent.
4/ this neglect is more prevalent in the young than the old.
4/ this neglect is more prevalent in the young than the old.
My comment: this neglect leads to a problem so characteristic of the Indian state - spread too thin trying to do lots of things and ends up doing virtually nothing well enough.
That apart, I find opportunity cost neglect in commentaries on India's foreign policy as well. Each policy question is answered by citing explicit benefits in favour of that policy option. Few analyses consider the opportunity costs of these policy options.
For instance, what are the opportunities forgone when India decides to deploy its resources for preventing a larger PRC presence in Nepal? Could the tools of statecraft used — economic power, intelligence, diplomacy — have been put to better use elsewhere?
Or what is the opportunity cost of having two strike corps dedicated on the Western border when clearly the structural threat to India is on its Northern and Eastern borders? Such questions are rarely asked.
Even scholars from the realist school of international relations often overlook this point.
While they focus on the relative power of states (an approach I too lean towards), they miss out on the other important aspect of realism — taking into account India’s resource trade-offs as they are now and not as they should be in an ideal world.
My intuition is that the area studies approach in foreign policy incentivises ignoring the opportunity costs. Which analyst, after all, is going to write that India should not invest time and energy in the region he/she is an expert on?
So we end up in a situation where foreign policy write-ups often become a litany of asks from the government for more resources followed by ruminations of dejection when those asks don’t fructify.
Given that resources of all kinds will be even more scarce because of COVID-19, it is all the more imperative that India’s global outlook confront tough trade-offs.
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@tinghog really liked your paper. We've linked it in the description. Do you observe this neglect in other fields of public policy as well?
