The ends and means of public policy

This chapter discusses efficiency and equity as criteria for good public policy, and explores how public policy can harness the means of markets, the state and the community to achieve these ends. Markets have a comparative advantage in efficiency because of their capacity to tap vast amounts of tacit information and respond rapidly to changing economic conditions, notably preferences. But markets suffer from a range of failures and are also unable to effectively meet equity goals. As such, there is a substantial role for the state and the community in contemporary public policy not just to improve equity outcomes but also to assist in efficiently allocating scarce resources. What equity outcomes are desired and the extent to which trade-offs between efficiency and equity are considered sensible will differ by society, but the chapter analyses some common principles. It concludes with a brief discussion of how to achieve equity efficiently.