A better grasp of economic thinking can help us come to better decisions, from understanding what is 'value' in a cost-benefit analysis of the MacRitchie MRT proposal, to public online input on broken street lamps
By Euston Quah and Jonathan Tan, Published The Straits Times, 13 Jul 2017
The Government has been increasing its engagement with the public. In turn, as a people, we have the responsibility to help make better decisions.
This is especially important as good public policy processes place value on social impact and seek to understand the behaviour of Singapore's diverse society, as well as make sense and use of increasingly abundant behavioural data.
As Singapore gets more complex, and citizens get better educated and informed, more public voices are able to offer more informed views, drawing from academic disciplines. However, this can be strengthened further through sound economic thinking. Singapore must move towards more rigorous reasoning across all levels of public choice, starting from the grassroots - including at the coffee-shop level.
Here are some principles, drawn from the study of economics, that show how public policymaking can be enhanced, including how the public's views and perceptions on an issue can be more informed in giving feedback.
1. WIN SOME, LOSE SOME
Should we tunnel the Cross Island MRT Line through MacRitchie Reservoir? Let's think beyond the cost of construction and service benefits of the new line. Soil investigations present the risk of pollution despite costly mitigation measures. Aquatic habitats and animals, including the globally vulnerable Johnson's freshwater crab found nowhere else on our planet, are at risk.
The systematic analytical technique of cost-benefit analysis (CBA) can be used to evaluate the desirability of alternatives - including building around MacRitchie - by comparing their costs and benefits in social welfare terms.
Indeed, CBA is fundamental to governmental decisions on how to use society's scarce resources, such as whether a project or programme is worthwhile, and its optimal scale or constraints. It steers our transportation, environmental, agricultural, land-use, urban-renewal, educational and health policy choices.
Monetary and non-monetary incentives drive economic decisions in households, organisations and public policy. The concept of welfare, rather than mere money, is the currency of economic analysis.
Good policy must recognise the trade-offs of available options.
2. UPGRADE COFFEE-SHOP TALK
The Government is a global pioneer in opening up more than 5,000 of its data sets on Data.gov.sg to the public. The keyboard warrior can now engage and contribute on the basis of deeper analytical insight relevant to the heart of our society.
Many of us grew up in coffee shops where policy views were shared as a love language for Singapore. This digital age of intentional public engagement empowers us to contribute much more to collective decisions now. If the public embraces the use of new tools such as Data.gov.sg, the future is set for better-informed public policy decisions.
3. VALUE PEOPLE'S WELFARE
Economics goes beyond accounting for profit and loss to consider the impact on the wider society. While it matters how much a business profits from a project, we also consider net welfare benefits to the people, and to society as a whole.
When reducing air pollution to comply with increasingly stringent World Health Organisation guidelines, we must weigh its cost to taxpayers and the probable loss of economic competitiveness against its benefits to productivity and health.
In attempting to minimise transboundary haze pollution, Singapore might offer both monetary and non-monetary assistance to Indonesia. In such negotiations, it is critical to estimate the damage to Singapore. As a gentle reminder, the "bill" for the 1997 haze was $383 million.
Similarly, we must not neglect the irreversible welfare losses of building on ecologically rich heritage sites. CBA measures social impact with non-market valuation techniques. So now, it is not "what price", but "what value" MacRitchie?
Hence, it is useful for people to realise that good policy should be driven by its welfare implications for society.
4. HELP PEOPLE HELP SOCIETY
Someone recently asked how we predict behaviour without studying psychology. "By analysing incentives," was the reply, "and even psychological incentives can be quantified."
To enrich our analysis of intangibles and intrinsic values, behavioural economics blends insights from psychology with the rigour of economic modelling. It studies reasoning processes and cognitive limitations; preferences for risk, time, social norms, image or others' welfare.
Who dares to misbehave? Today's society will judge, sentence and punish the guilty on Stomp.com.sg and other social media outlets. Cases even escalate to apologies or public prosecution.
Professors Ernst Fehr and Simon Gachter explain that public sanctions on anti-social behaviour are due to the phenomenon of "altruistic punishment". People are willing to bear a cost to punish social injustice.
Just as Fixmystreet.com in the UK provides a platform for reporting local problems such as broken lamps or fences, thanks to the public, the couple shown pushing an old uncle at a Toa Payoh hawker centre in a viral video were identified and arrested. Likewise, the otherwise onerous task of detecting socially "bad" fake news can be crowdsourced and complemented with the threat of legal penalties.
Good policy will support society in enforcing its good norms.
5. SAFETY FIRST - TEST POLICY
Behavioural economics can also guide policy choice. Why risk it on society when policies can be safely tested with laboratory experiments, randomised controlled trials (RCTs) or computer simulations prior to launch?
Instead of incurring high social costs by trying the wrong mechanisms on the public, many universities run experiments in laboratories to test policies by simulating the desired conditions in artificial economies made of test subjects.
The UK's Behavioural Insights Team, which has a Singapore office, works with the British and Singapore governments to run RCTs on sub-populations. It tests how the introduction of measures such as, for example, the presentation of choices for electricity usage, influences behaviour.
Future RCTs can factor economic incentives and strategic concerns into policies.
6. UPCYCLE KNOWLEDGE AND SKILLS
The sole purpose of experiments or RCTs is to generate testable data, which is analysed with econometric methods. That said, econometrics was developed to tackle messier data sets: the sort organisations and businesses collect from much of what we do every day.
Investors are set on big data. Alibaba Holdings founder Jack Ma put US$1 billion (S$1.38 billion) on cloud computing with a statement to match: "With computing capabilities and data, mankind will go through changes that flip heaven and earth."
Big data centres with high-powered computers are springing up in commercial and university locations.
Mr Warren Buffett's Berkshire Hathaway Energy confidently invested in Mr Brad Keywell's Uptake Technologies, an analytics firm worth US$2 billion.
Governments, non-profit organisations, airlines, financial services, retailers, manufacturers and researchers have started to embrace big data analytics. Just as with production materials and machines, data and computers need people to operate them. The ubiquity of data analytics spells the advent of a new sector for Singapore. Why waste our publicly invested resource of highly educated people?
By pivoting our skills towards analytics with accessible online courses by EdX and DataCamp, for example, we can future-proof our comparative advantage. Tap into the global market as an analytics expert.
As this list shows, economics offers a useful toolkit to analyse and make policy decisions that lead to better outcomes.
Cost-benefit analysis compares the pros and cons of available choices. Behavioural economics enriches our understanding of humans by factoring in diverse psychological influences. Econometrics crunches data for vital information.
Euston Quah is professor of cost-benefit analysis and head of economics at Nanyang Technological University. He is also president of the Economic Society of Singapore.
Jonathan Tan is associate professor of economics at the University of Nottingham, and visiting scholar at NTU's Economic Growth Centre.
By Euston Quah and Jonathan Tan, Published The Straits Times, 13 Jul 2017
This is especially important as good public policy processes place value on social impact and seek to understand the behaviour of Singapore's diverse society, as well as make sense and use of increasingly abundant behavioural data.
As Singapore gets more complex, and citizens get better educated and informed, more public voices are able to offer more informed views, drawing from academic disciplines. However, this can be strengthened further through sound economic thinking. Singapore must move towards more rigorous reasoning across all levels of public choice, starting from the grassroots - including at the coffee-shop level.
Here are some principles, drawn from the study of economics, that show how public policymaking can be enhanced, including how the public's views and perceptions on an issue can be more informed in giving feedback.
1. WIN SOME, LOSE SOME
Should we tunnel the Cross Island MRT Line through MacRitchie Reservoir? Let's think beyond the cost of construction and service benefits of the new line. Soil investigations present the risk of pollution despite costly mitigation measures. Aquatic habitats and animals, including the globally vulnerable Johnson's freshwater crab found nowhere else on our planet, are at risk.
The systematic analytical technique of cost-benefit analysis (CBA) can be used to evaluate the desirability of alternatives - including building around MacRitchie - by comparing their costs and benefits in social welfare terms.
Indeed, CBA is fundamental to governmental decisions on how to use society's scarce resources, such as whether a project or programme is worthwhile, and its optimal scale or constraints. It steers our transportation, environmental, agricultural, land-use, urban-renewal, educational and health policy choices.
Monetary and non-monetary incentives drive economic decisions in households, organisations and public policy. The concept of welfare, rather than mere money, is the currency of economic analysis.
Good policy must recognise the trade-offs of available options.
2. UPGRADE COFFEE-SHOP TALK
The Government is a global pioneer in opening up more than 5,000 of its data sets on Data.gov.sg to the public. The keyboard warrior can now engage and contribute on the basis of deeper analytical insight relevant to the heart of our society.
Many of us grew up in coffee shops where policy views were shared as a love language for Singapore. This digital age of intentional public engagement empowers us to contribute much more to collective decisions now. If the public embraces the use of new tools such as Data.gov.sg, the future is set for better-informed public policy decisions.
3. VALUE PEOPLE'S WELFARE
Economics goes beyond accounting for profit and loss to consider the impact on the wider society. While it matters how much a business profits from a project, we also consider net welfare benefits to the people, and to society as a whole.
When reducing air pollution to comply with increasingly stringent World Health Organisation guidelines, we must weigh its cost to taxpayers and the probable loss of economic competitiveness against its benefits to productivity and health.
In attempting to minimise transboundary haze pollution, Singapore might offer both monetary and non-monetary assistance to Indonesia. In such negotiations, it is critical to estimate the damage to Singapore. As a gentle reminder, the "bill" for the 1997 haze was $383 million.
Similarly, we must not neglect the irreversible welfare losses of building on ecologically rich heritage sites. CBA measures social impact with non-market valuation techniques. So now, it is not "what price", but "what value" MacRitchie?
Hence, it is useful for people to realise that good policy should be driven by its welfare implications for society.
4. HELP PEOPLE HELP SOCIETY
Someone recently asked how we predict behaviour without studying psychology. "By analysing incentives," was the reply, "and even psychological incentives can be quantified."
To enrich our analysis of intangibles and intrinsic values, behavioural economics blends insights from psychology with the rigour of economic modelling. It studies reasoning processes and cognitive limitations; preferences for risk, time, social norms, image or others' welfare.
Who dares to misbehave? Today's society will judge, sentence and punish the guilty on Stomp.com.sg and other social media outlets. Cases even escalate to apologies or public prosecution.
Professors Ernst Fehr and Simon Gachter explain that public sanctions on anti-social behaviour are due to the phenomenon of "altruistic punishment". People are willing to bear a cost to punish social injustice.
Just as Fixmystreet.com in the UK provides a platform for reporting local problems such as broken lamps or fences, thanks to the public, the couple shown pushing an old uncle at a Toa Payoh hawker centre in a viral video were identified and arrested. Likewise, the otherwise onerous task of detecting socially "bad" fake news can be crowdsourced and complemented with the threat of legal penalties.
Good policy will support society in enforcing its good norms.
5. SAFETY FIRST - TEST POLICY
Behavioural economics can also guide policy choice. Why risk it on society when policies can be safely tested with laboratory experiments, randomised controlled trials (RCTs) or computer simulations prior to launch?
Instead of incurring high social costs by trying the wrong mechanisms on the public, many universities run experiments in laboratories to test policies by simulating the desired conditions in artificial economies made of test subjects.
The UK's Behavioural Insights Team, which has a Singapore office, works with the British and Singapore governments to run RCTs on sub-populations. It tests how the introduction of measures such as, for example, the presentation of choices for electricity usage, influences behaviour.
Future RCTs can factor economic incentives and strategic concerns into policies.
6. UPCYCLE KNOWLEDGE AND SKILLS
The sole purpose of experiments or RCTs is to generate testable data, which is analysed with econometric methods. That said, econometrics was developed to tackle messier data sets: the sort organisations and businesses collect from much of what we do every day.
Investors are set on big data. Alibaba Holdings founder Jack Ma put US$1 billion (S$1.38 billion) on cloud computing with a statement to match: "With computing capabilities and data, mankind will go through changes that flip heaven and earth."
Big data centres with high-powered computers are springing up in commercial and university locations.
Mr Warren Buffett's Berkshire Hathaway Energy confidently invested in Mr Brad Keywell's Uptake Technologies, an analytics firm worth US$2 billion.
Governments, non-profit organisations, airlines, financial services, retailers, manufacturers and researchers have started to embrace big data analytics. Just as with production materials and machines, data and computers need people to operate them. The ubiquity of data analytics spells the advent of a new sector for Singapore. Why waste our publicly invested resource of highly educated people?
By pivoting our skills towards analytics with accessible online courses by EdX and DataCamp, for example, we can future-proof our comparative advantage. Tap into the global market as an analytics expert.
As this list shows, economics offers a useful toolkit to analyse and make policy decisions that lead to better outcomes.
Cost-benefit analysis compares the pros and cons of available choices. Behavioural economics enriches our understanding of humans by factoring in diverse psychological influences. Econometrics crunches data for vital information.
Euston Quah is professor of cost-benefit analysis and head of economics at Nanyang Technological University. He is also president of the Economic Society of Singapore.
Jonathan Tan is associate professor of economics at the University of Nottingham, and visiting scholar at NTU's Economic Growth Centre.
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