As public policy agencies increasingly diversify their decision-making approaches, many remain overly reliant on static tools such as cost-benefit analysis. Such tools have serious limitations, leading to policy errors with serious long-term consequences.
LONDON– The UK is entering its deepest recession in 300 years. Millions of jobs are at risk. And the national debt has exceeded 100% of GDP. Now is not the time to explore the conceptual underpinnings of economic theory, is it?
In fact, as governments around the world borrow, spend and regulate on an unprecedented scale, a deeper understanding of economic decision-making is essential both to accelerate recovery and to avoid longer-term risks. This is why the British Treasury new direction on decision-making for transformational change is welcome, and why finance ministries around the world should follow this example.
In one recent study for the UK’s Better Regulation Executive, we found that although public policy bodies are increasingly diversifying their approaches to decision-making, many remain overly reliant on static tools such as cost-benefit analysis. benefits. Such tools are poorly suited to understanding, predicting and stimulating innovation and structural change in the economy.
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