Economic Foundations

An important part of beginning to understand how public policy is crafted and implemented for the public good is to understand the foundations in which all policies have to stand, economics. There are many aspects to consider when developing a new policy,which means that the policy analyst tasked with the development needs to have a firm understanding several key concepts.

A primary concept is knowing how externalities work on an economy and their interaction with the specific policy criteria. Externalities are the reason that many policies and taxs are created, in order to correct a market distortion that is having a negative effect on the public. These externalities hold a key part in how public discourse is conducted and how different policy alternatives are crafted, this can be illustrated the best in the debate over carbon pricing and climate change.

There are several solutions on implementing a carbon pricing scheme to correct the negative externalities created by carbon emission, either through taxation or cap and trade. However with each of these policy instruments there are addition criteria that can be discussed, an example is linked outlining the benefits and weaknesses of a value added tax; VAT is generally used in Europe and not in the United States.