Public Policy Analysis

A Discussion

Krisna Gupta

Center for Indonesian Policy Studies

June 21, 2023

I Made Krisna


  • Why economics?

  • What to look for in writing a policy piece.

  • Some usual problems according to my experience.

Your expectation?

Basic assumption

  • No economics and/or mathematics background.

  • Some experience in CIPS’ work.

  • chance is, I can learn from you. So please don’t be shy.

Why Economics

  • Economics is NOT about (just) money!

  • Economics is a study of optimization: how to get the best under constraints.

    • The same with engineers!

    • We use very similar tools!

  • Economists are just a bunch of people who use thermodynamics to explain your daily problems!

  • Increasingly, economics also do empirics!

Theory vs Empirics

  • Theory: If X leads to Y while Z does not lead to Y, then lets do X.

  • Does X really lead to Y while Z does not?

  • The first is the optimization part, the second is the empirical part.

  • But stil, relationship between Xs & Ys is what interests all economists.

Some questions

  • How to best tackle climate change?

  • Is minimum wage good?

  • Should we ban trade to industrialize?

  • How to best feed our people?

  • Should we invest in school or road?

About economics

Why people make choices

  • The main reason is resources’ scarcity.

  • resource = anything you use to get what you want.

  • mainstream resources are money; Given 4k trilyun APBN, what program should we finance?

  • But other resources are important too: time, people/institutions, inflation.

Opportunity cost

  • The true cost of something is its possible other uses. Money is the least of our concern.

  • The cost of having holiday, for example, is the money & time you could otherwise use to join a short course.

  • The cost of doing an S1:

    • Go straight to work, get experiences & money

    • Do other degree

    • enjoy life

  • I daresay opportunity cost is the core concept of economics!

Thinking at the margin

  • The principle of opportunity cost leads to a marginal thinking

  • understand the status quo, then think if it can be (marginally) improved.

  • e.g., say you have 2 hours to spent on work or play. how to divide?

    • depends: when’s the work deadline?

    • if you work for another 30 minutes, would that help with work?

Specialization & trade

  • During your daily time, you make decisions on allocating how much time to study and to cook, among other things.

  • Since you will die if you don’t eat, you can’t allocate 0 hour to cook.

  • On the other hand, there are those who are very good cook and will cook for you for a little money.

  • In this case, it may be better if you spend 0 hour to cook, and order food from these chefs.

  • Trade is the reason why I can study economics: I don’t have to study how to be a doctor. I will just go to the hospital if I need a medical service.

One family economy

  • Picture this: your household decided to be independent1, and you print your own currency.

  • To fulfill your “country” needs, you need to choose: swasembada or trade.

  • Swasembada: you make everything yourselves with everything you have: food, education, healthcare (internet is counted as import!)

  • Trade: things you normally do right now: you focus on your trade, “sell” them outside, and “import” the rest!

SPecialization & trade

  • Extending to firm level:

    • Why build our own office suit if we can buy microsoft office?

    • Why build our own server if there’s AWS, Biznet, others?

  • Easily extending this to country level:

    • Japan’s capital & labor are mobilized to make cars cuz they get less if they plant palm oil.
  • Remember: export is beneficial because we can import from the revenue!

Typical problem

  • Most policy makers & policy analysts are stumble in the trade argument because they often forgot about resource constraints and opportunity cost.

    • leads to a macro-policy which aims at increasing everything.
  • our land, workforce, APBN, etc are limited.

  • Even if you have a lot of resources, for example, the extra money could be better spent to grow one thing.

Political context

  • There is almost no policy that’s not biased: benefits some sub-population while hurts others.

    • Agriculture Imports hurts farmers while helps consumers and industrialists.

    • Scholarships benefit smart individuals & high-skilled industries.

    • All subsidies benefit targeted groups at the expense of taxpayers.

  • Economists often focuses on generalization and leaning toward policies that improves aggregate welfare


  • When there is an incentive to do something, there will be more and more people exploit it.

  • As more people do it, the incentive decreases to a point where it is not worth it anymore.

  • examples:

    • City becomes more crowded (and costly to live in).

    • Countries’ economic growth reduced after they get rich.

  • Movement towards equilibrium, however, varies.

    • short run vs long run,individual vs aggregate.


  • Main principles: scarcity, opportunity cost, marginal thinking, & equilibrium.

  • Economics gets much more complicated that this.

  • The principle, however, remains the same (more or less)


Consider a country called Kuvukiland which has 2 industries: wheat and bread, and 3 classes of people: consumers, farmers who work in the wheat industry, and bakers who work in the bread industry. Consumers eat only bread & all wheat goes to bakers. Technology is simple: 1 bushel of wheat -> 1 loaf of bread. Price bread = price wheat.

With no trade, farmers produce 8 ton wheat at P=7000. With trade, Kuvukiland can import with international prices at P=6000, demand rises to 10 ton, but at that price, farmers only produce 6 ton. 4 ton are imported.

Discuss: is trade better? Who benefits? If there’s a ballot, who will vote for free trade?

Writing a policy paper

  • This is not a writing drill. Everybody has their own style.

  • However, there are some things that you may want to have in your writing.

  • Don’t forget to keep the principle in our previous learning in your mind while doing this.

Public Policy Principle

  • We often write something theoretical (like this for example) but also something more empirics (like this for example)

  • Well, in reality, it is not so useful differentiating the two. We often just mix them.

  • However, you can see the pattern of these works are somewhat similar:

    • Does policy X really leads to outcome Y?

    • Is there a better way to get Y? Maybe policy Z is actually better than X?

What to look for?

When we write about policy, aim for these things:

  1. Problem definition

  2. Policy targets

  3. Policy assessments

  4. Assess alternative options

Problem definition

  • Why the regulation is needed? The reason often boils down to the presence of market failure, inefficient prior regulations, or new targets.

  • Find this in a “menimbang” part, sometimes at “pasal 2”, but sometimes in the media.

  • Some regulations try to tackle more than one problem, so list them accordingly.

  • Your paper may or may not contain regulation, but the problem definition is a must-have.

  • See if these problems can be translated into policy targets.

Policy targets

  • If you write on a particular policy, first you must tell readers what it is and how does it work.

  • You must state boldly what it tries to achieve, then you must focus these targets.

  • Identify whether you can relatively easily inspect those targets.

  • Identify which target the government say it has been achieved, and check whether it’s true.

  • If you’re not studying a particular policy, then state these targets in your policy recommendations.

Policy target

contoh di Perpres 32/2022 tentang Neraca Komoditas

Policy assessment

  • The assessment part usually straightforward. See if you can argue or find data on it.

    • make sure you understand the mechanism from the policy to the result.

    • e.g. how CPO exports (the policy) leads to lower domestic prices?

  • If you know the mechanism, it is easier to find the gap:

    • CPO exports failed amid wrong assumption: \(P\downarrow \Rightarrow Q\downarrow\)
  • Assess qualitatively if finding hard data is not easy.

    • find evidence like recordings/article of government agents’ speech/inverview, news articles, government reports, etc.
  • as long as you focus on the policy \(\rightarrow\) target mechanism, should be fine.

Check/offer alternatives

  • Try to hypothesize policy alternatives, and see if it would have worked better!

    • Always remember the context around the policy!

    • No policy IS a policy!

  • You can try to look for papers or studies on similar policy under different context (usually policies in different countries).

  • Approach with Cost-Benefit!

    • Think of cost as not just money.opportunity cost guys!

    • Benefit also lies beyond money.

Usual problems

  • Target is often not realistic / too broad. (e.g., Free Trade Agreement -> higher exports)

  • Correlation is not the same as causation:

    • reverse causality (X causes Y or Y causes X).

    • spurious correlation (X & Y moves together \(\neq\) one cause another).

    • no counterfactual (Try to theorize the counterfactual or better yet use causal inference techniques)

  • Short-termism / overestimation.

Usual problems

  • You must also think in a power balance / political context (vested interests):

    • Which class / part of populations gets the benefit? Which one bear the cost?

    • Who would help your advocation, who will block it?

    • Almost all policy is about “keberpihakan”

  • “Government” is a really broad term. In truth, they’re vastly different between & within Ministries/Agencies: interests, KPI, qualities, party, etc.

    • their cooperation can’t be taken for granted.

Usual problems

  • The consequence of a target is often unclear for policy makers.

    • Blocking milk imports -> dwarves manufacturing growth (well this is partly vested interests)
  • The consequence of a target may be worth it

    • Maybe its okay to be poor as long as we can call ourselves agriculture nation?

    • A grand mosque maybe more important than good schools?

  • We assess, but it’s political decision in the end.

Usual problems

  • Context matter heavily, especially institutional capacity.

    • In developed countries, subsidies work well because almost everyone has bank accounts.

    • Finance is less of a problem in developed countries.

    • Corruption. I don’t have to say more.

    • Governments often didn’t know what’s a reform mean.

  • We often needs to be creative because we face different constraints compared to other countries.

    • liberalization dominates policy advice in a country with a bad government.

Some more tips

  • Be aware of your own biases

    • If all you have is a hammer, everything looks like a nail.

    • Try your best to keep your mind open, listen to as many vantage points as you can.

  • “adding things” problem.

    • more budget! More words/pages! More regulations!
  • Again, always keep power balance & political games in mind.

Bottom line

  • Look for the actual problems & the policy targets

  • Assess for alternatives & look for typical cause of why a policy fails (or potentially fails)

  • Use hard data if you can, assess qualitatively if you can’t.

  • Remember to understand the political context behind every policy.


  • Can you identify those points in the policy analysis must-haves? Use whatever policy paper/brief you’re familiar with or use this piece

Last slide

  • Thanks for your participations!

  • If you’re interested learning more on basic economics, check out my course for Universitas Petra’s undergrad program here

  • My policy part is taken mostly from World Bank’s RIA analysis which can be downloaded here