Efficiency–Equity–Feasibility Policy Test
Test policy for economic value, fairness, and practical viability
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 95%
The test evaluates a proposal through three connected lenses. Efficiency asks whether the proposal uses resources well and produces sufficient benefits relative to its costs. Equity asks whether the distribution of gains, losses, and opportunities is fair. Feasibility then tests whether the proposal can survive political, financial, legal, and institutional constraints. These lenses should first be analyzed separately so that hidden trade-offs remain visible, then combined into a practical recommendation. The output is not necessarily the theoretically optimal policy; it is the strongest achievable improvement. Compromise is acceptable when it preserves meaningful benefits, while an ad hoc process that skips impact, cost, or distributional analysis is likely to produce weaker policy.
Origin
Alan Krueger described the systematic approach economists brought to policy development while discussing the National Economic Council and the failure of 1990s healthcare reform. He contrasted that process with more ad hoc policymaking and emphasized that compromise can improve outcomes.
Core principles
- 01Separate efficiency from equity before balancing them
- 02Compare expected benefits with financial and social costs
- 03Distinguish an ideal policy from a politically achievable one
- 04Accept compromise when it produces a meaningful improvement
- 05Use a systematic process rather than ad hoc negotiation
How to run it
- 1
Define the objective
State the problem, desired outcome, affected population, and constraints. Establish what success would look like before comparing proposals.
Pro tip Use a measurable outcome rather than a broad political slogan.
Watch out An ambiguous objective allows participants to evaluate different problems while believing they agree.
- 2
Test efficiency
Estimate the proposal's benefits, costs, resource requirements, incentives, and likely behavioral effects. Compare those results with realistic alternatives.
Pro tip Include indirect effects and opportunity costs, not just headline spending.
Watch out Do not assume that spending more automatically produces proportionally better outcomes.
- 3
Test equity
Identify who receives the benefits, who carries the costs, and whether the distribution is defensible. Keep this analysis distinct from the efficiency calculation.
Pro tip Examine effects across income, geography, demographic groups, and time.
Watch out An efficient aggregate outcome can still impose unacceptable losses on a vulnerable group.
- 4
Test feasibility
Assess whether the proposal can be funded, administered, passed, and maintained. Identify the legal, political, and institutional obstacles that could block implementation.
Pro tip Ask implementing departments to challenge the assumptions and add operational evidence.
Watch out A theoretically optimal proposal creates no value if it cannot be enacted or administered.
- 5
Negotiate bounded compromises
Modify the proposal where necessary while protecting its central benefits. Accept a compromise only when it still improves conditions relative to the status quo.
Pro tip Document which benefits are non-negotiable and which design elements are flexible.
Watch out Compromise is not automatically valuable; it must still lead to better policy.
- 6
Select the best achievable option
Compare the surviving alternatives and recommend the option with the strongest combined efficiency, equity, and feasibility profile. Make the remaining trade-offs explicit.
Pro tip Present the ideal option alongside the achievable recommendation to reveal the cost of constraints.
Watch out Do not let pursuit of the perfect option prevent a substantial attainable improvement.
In the wild
Krueger argued that 1990s healthcare reform suffered because it did not move through the National Economic Council's systematic process. The proposal was therefore developed without enough structured examination of impact, cost, benefits, and implementation trade-offs.
→ The episode illustrates how bypassing systematic evaluation can weaken a major policy initiative even when its underlying objective is important.
A government considering a minimum-wage increase could compare worker income gains, employment effects, consumer spending, regional variation, and employers' ability to absorb the change. It could then select a phased level that improves wages without imposing an abrupt doubling of labor costs.
→ The process produces a defensible improvement rather than a choice between no action and the most aggressive possible increase.
Common mistakes
Blending efficiency and fairness
Treating efficiency and equity as one question hides whether disagreement concerns total value or the distribution of that value. Analyze them independently before making trade-offs.
Ignoring implementation constraints
A proposal may look excellent on paper but fail because it cannot be funded, administered, or enacted. Feasibility belongs inside the evaluation rather than after the decision.
Rejecting every compromise
Holding out for the theoretical optimum can preserve a worse status quo. Judge compromise by whether it creates a real improvement without destroying the proposal's core value.
Is it for you?
Best for
It is best for policymakers, institutional leaders, and executives evaluating consequential proposals with competing objectives.
Not ideal for
It is not ideal for urgent operational decisions where evidence cannot be collected and trade-offs cannot be meaningfully assessed.
From the transcript
“we think about efficiency, we think about equity”
“we make trade offs”
“We shouldn't let the best be the enemy of the good.”
From the episode
Alan Krueger Remembered on Masters in Business (Podcast)
Alan Krueger