Economics of Public Problem-Solving Research Paper Starter

Economics of Public Problem-Solving

(Research Starters)

This article will focus on the economics of public problem-solving. It will provide an overview of the economic history of public problem-solving in the United States. This overview will serve as the foundation for discussions on the relationship between democratic values and public problem-solving as well as tools of economic analysis and public problem-solving. In addition, the relationship between public policy, funding structures, and public problem-solving will be described and analyzed. Numerous real world examples of public problem-solving will be discussed.

Keywords Economic Analysis; Problem Solving; Public Policy; Public Problems; Values



Public problems such as poverty, child abuse, smoking, crime, aging and terrorism are characterized as undesirable conditions that impinge on a society. All undesirable conditions within society do not become classified as public problems. Citizens and their elected officials establish their public problem agendas based on their levels of tolerance for specific adverse conditions. Theoreticians use decision or choice theory, which studies how real or ideal decision-makers make decisions and how optimal decisions can be reached, to explain how public problems are solved in ideal circumstances. In reality, historical, social, and economic variables make many public problems difficult to solve if not intractable.

The U.S. government addresses and solves public problems through multiple means and strategies. In government, public administrators and politicians are responsible for solving many types of public problems. A common, generally applied problem-solving or decision-making model includes the following steps:

  • Determine whether a problem exists.
  • State decisional objectives, alleviations, or solutions.
  • Identify the decision apparatus and possible action options.
  • Specify alternatives.
  • State recommendations.
  • Ascertain ways to implement recommendations.

Public problems may be routine, out-of-the-ordinary, small-scale, or large-scale. Systematic decision-making processes may or may not be used in their entirety to solve or alleviate the public problem. Factors influencing the formal adoption and use of a problem-solving process or model include agency or department regulations, personal preference of the public administrator, and the variables of the public problem at hand (Hy & Mathews, 1978).

Problem solving strategies are often situation or condition-specific, requiring carefully selected problem-solving strategies and techniques such as the multiple criteria decision making model (MCDM), consensus or group decision making, ethical decision-making, and finance-based or budget-maximizing decision making. The federal government's problem-solving process involves activities such as intergovernmental collaboration, public budgeting, public policy, public education, and regulation (Andranovich, 1995). Important trends in public problem solving include increased community participation in government decision-making and collaborative public decision-making (Irvin, 2004).

While the federal government as a whole uses multiple problem solving models and approaches to solve and alleviate the public problems arising from, for example, overuse of the urban infrastructure, pollution, unemployment, public education, childhood poverty, aging Americans, sanitation problems, drunk driving, gangs and gun violence, nearly all of the federal government's problem-solving efforts and processes are significantly influenced by economics. The federal government, and its numerous agencies, is increasingly called upon by the public to improve financial and operating performance. The current government-society relationship is characterized by demands for government accountability in spending and programs. For example, current public budgeting is characterized by variables such as governmental accountability, performance requirements, and program justification.

The political economy of public problems, and closely related public policy, is a long-established area of study and interest. The economics of public problem-solving involves at least three different elements:

  • The federal government prioritizes the value of economics, and a strong economy, when solving public problems.
  • The federal government uses economic tools for analysis, such as strategic accounting, serial cost sharing, cost-based systems, activity-based costing system, and total unit cost-output model, when solving public problems.
  • The federal government has budget formats and funding structures in place which influence the scope and parameters of problem-solving public policy.

This following section will provide an overview of the economic history of public problem solving. This section will serve as the foundation for later sections describing and analyzing the three ways, described above, that the federal government uses economic approaches and justifications to solve and alleviate public problems. In addition, a case study describing the economics of managed beach erosion will be included at the end of the article as an opportunity to examine the ways in which economics influence the definition and solution of a real world public problem.

Economic History of Public Problem-Solving

In the United States, the economic history of public problem solving, including the development and implementation of a wide range of fiscal and public policy as well as regulatory agencies, began in the late eighteenth century. Following the American Revolution, the individual economies of the states were faltering, paper money had little value, and there was conflict between borrowers and lenders. The original thirteen states came together to draft the U.S. Constitution, in part, to stabilize and strengthen the U.S. economy. The U.S. Constitution and its amendments were drafted to solve and alleviate social and economic problems.

From the Civil War through the beginning of the Industrial Revolution, the U.S. economy was characterized by cycles of growth and contraction. By 1920, the U.S. had begun mass production of standardized goods in factories and the practice of commercial advertising on the radio. The development of commercial radio meant that companies could promote their products and services to a larger audience of potential consumers than ever before. The federal government founded the Federal Communications Commission (FCC), an independent United States government agency that regulates interstate and international communications by radio, television, wire, satellite and cable, in 1934 to monitor, solve, and alleviate the public problems caused or exacerbated by telecommunications activity in society.

The Great Depression, the severe economic recession in America that lasted from 1930-1934, was caused by instability of the American economy created, in part, by new mass manufacturing processes, uneven distribution of wealth and profits, and the government's investment in new industries rather than agriculture. The Depression ended when President Franklin D. Roosevelt took office in 1933. Roosevelt's New Deal Campaign, an example of a successful public problem solving-campaign, outlawed gold coins, set farm quotas, and established government work programs to generate confidence and money within the U.S. economy.

In the 1930s, following the Great Depression, the United States government began a program and approach of economic problem-solving that created mixed fiscal and monetary policies in an effort to produce sustained economic growth and stable prices (for goods, services, and natural resources). The government, with a strong record in the latter half of the 20th century for controlling cycles of expansion and contraction, remains challenged by inflation and related problems of unemployment. The government, including budgets, policies, and regulatory agencies, has been growing steadily since the 1930s. In 1930, the federal government accounted for 3.3 percent of the nation's gross domestic product (GDP) while in 1999, the federal government accounted for 21 percent of the nation's gross domestic product (Conte, 2001). The scale and scope of the federal government has grown in the twentieth century in proportion to the demand from society for increased public problem-solving by government agencies and leaders.


Economic Approaches to Public Problem-Solving

Economics influences what public conditions citizens and their representatives consider to be public problems as well as the strategies that the federal government uses to alleviate or solve the public problem. The following three sections, including values and public problem-solving, tools of economic analysis and public problem solving, and funding structures and public problem-solving, combine to illustrate the ways in which economics influences the federal government's public problem-solving efforts.


Public problems are categorically different than private problems. Examples of public problems include gun violence, beach erosion, domestic violence, drunk driving, teen pregnancy, low voter turnout, childhood poverty, gang colors worn in school, and homelessness. Examples of private problems include marital trouble, deciding between colleges, flat tires, deciding how to dress, or lack of childcare. Some issues, such as access to childcare, straddle the line between public and private problems. For many families, the cost of childcare may outweigh the financial benefit of a low-wage job, and for low-income families the conflict between employment and childcare can be an economic trap. Some researchers argue that government provided or subsidized childcare allows low-income earners to escape poverty (Huston, A.C., et al., 2011) and is therefore economically positive; whereas, others caution that policies requiring employment as a condition of public assistance come at a social cost (Albelda, R., 2011).

How do individual or general conditions become public problems? Public problems, such as poverty, child abuse, smoking, crime,...

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