Efficiency Ex Ante, Equity Ex Post

But I’m a big fan of clever policies, which means I always end up advocating too-clever-for-their-own-good policies. Since the telos of the nation is above my paygrade, I try to focus on the wonky, technocratic stuff: how do we achieve more output for the same effort, such that whatever our national goals are — a high average standard of living, environmental harmony, world conquest, moon colonies, whatever — are easier to achieve?

My outlook is fundamentally Coasian, in the sense that I view transaction costs as the biggest constraint on optimization. There are many resources that would be better-allocated if they were priced optimally, but it’s hard to price them, so my usual approach is:

1. Imagine that you could put a price tag on something.
2. Think very hard about what the world would look like, until you think your way into a plausible equilibrium.
3. Decide what policy mix would get close to that equilibrium absent pricing.

For example, it seems obvious to me that public transportation should charge you by the mile and reimburse you by the minute. Clearly, we aren’t there yet. But we could get some of the way there if MTA employees had a bonus pool determined by their on-time statistics. If you take it as a premise that the MTA is not perfectly optimized around maximum throughput with minimum delay, you can easily justify a very hefty incentive program. Consider: the MTA does roughly 1.7bn rides per year. Let’s say those are 30 minutes apiece on…