The Study’s TBLE Distortion-Analysis Protocol for Economic-Efficiency Analysis

This chapter delineates and argues for the ex ante economic efficiency of the “distortion-analysis” protocol this study uses to assess the economic efficiency of choices. This protocol has three distinctive features. First, it instructs the analyst to consider the impact of the choice whose economic efficiency is at issue on the magnitudes of many categories of economic inefficiency that conventional economic-efficiency analyses ignore (including the economic inefficiency generated by resource allocations between alternative quality-or-variety-increasing-investment [QV-investment]-creating uses, between alternative production-process-research [PPR]-executing uses, among alternative unit-output-producing, QV-investment-creating, and PPR-executing uses, and among alternative final consumers). Second, it instructs the analyst to predict the impact of the choice under review on many individual categories of economic inefficiency (resource misallocation) by estimating the choice’s impact on the amount of resources devoted to the associated category of resource allocations, by estimating the profits/losses that would be generated by the choice-elicited/deterred resource allocation, by developing formulas for the difference between the profits yielded by and the economic efficiency of (the “distortion” in the profits yielded by) the individual exemplars of a relevant category of resource allocations, by estimating the post-choice magnitudes of the parameters in those formulas (primarily Pareto imperfections), and by combining the conclusions of the preceding analyses. Third, the protocol contains a subprotocol for determining the ex ante economic efficiency of doing any economic-efficiency-analysis-relevant work (which takes account not only of the direct allocative cost of such efforts but also of the allocative cost of the government’s financing such efforts) and instructs the analyst to do all that work but only that work whose performance is ex ante economically efficient.