The Efficient Frontier

THE EFFICIENT FRONTIER

One device that illustrates the potential for better public policy is known as the "Efficient Frontier." It can be generated as follows:

Take any political issue that you care about deeply. Imagine a chart on which you rank all the ways that the issue could be handled. You could assign a code letter to each possible outcome, and the more you preferred that outcome, the higher you would place it on the chart.

When you were finished, someone on the opposite side of the political fence would be asked to move all the letters on the chart to the right or left. The more she preferred an outcome, the further to the right she would move it.

When she was done, the chart would look something like this Each point represents a code letter. Most of the letters are left out to make the chart more readable.

The arc of points between A, D and B is called the ‘efficient frontier.’ Its significance is that all the outcomes below this line shortchange you, your opponent, the issues you care about, and the issues she cares about. For example, if the two of you compromised on the outcome at point C, both of you would do better at a point on the frontier up and to the right, point D."

The stakes are huge. If your issue were health reform, and one side was mainly concerned about the quality of health care and the other one was mostly concerned with cost, the gap between C and D on this chart could represent the health of millions of people and a savings of trillions of dollars. If the issue were the environment or tax structure, C and D could also mean an enormous difference in the quality of life and the economy. In fact, there is evidence that the environmental progress of the last 25 years could have been had for a fraction of the trillion dollars it has actually cost. Even on heated issues like abortion, there is room for both sides to do better than the status quo.

The problem is that the points on the chart and the frontier don’t create themselves. The people involved have to generate the policy alternatives. Then, they have to agree on a specific one.

That takes some doing. Point A, for example, represents a great outcome for your side, but is terrible for your opponent. If you fought for it, she would surely fight back. The reverse would happen with point B. To reach an outcome that is fair to you and to her, such as point D, both of you would need to pursue your own agendas and cooperate.

That doesn’t mean compromise. If two regions shared a river and fought over the boundary, for example, a compromise would be just to put the boundary in the middle.

That would be a waste. The odds are almost zero that two different groups of people have diametrically opposing agendas. One side, for example, might care mostly about fishing rights and the other mostly about shipping. With a little effort, both sides can get more of what they want most.

When two groups of people take opposing positions - "I want more of the river" - it is usually because they haven’t communicated enough to find out that many of their needs and wants are compatible or don’t directly conflict.

To reach the efficient frontier takes a constant balancing act between self-interest and collaboration. Both sides have to think about what aspects of the issue matter to them most. What are their priorities?

They have to communicate those priorities fully to each other. Then, by brainstorming with each other and seeking ideas from outside experts, it is almost always possible to generate many alternatives for meeting both sides’ objectives.

The last step is give and take, to trade - "I’ll give on items that matter most to you, if I can get what’s most important to me. Last year, for example, representatives for industry agreed to cut pollution substantially in return for more freedom on how to cut it. Environmentalists got lower pollution, while businesses got the freedom to meet environmental standards at the lowest possible cost. Companies got a huge incentive to use their resources to look for innovative ways of cutting pollution, so both sides won more than they would have by any other means.

Trading is the step that allows people who disagree about values or ideology to reach common ground. In this country we disagree about so much that resolving divisive issues without trading is inconceivable.

All of us have our own visions of what a better world would took like. The efficient frontier is, perhaps, a vision of a better world to which we could all subscribe. Everyone could get closer to what they value most. By its nature, our society is constantly generating new alternatives. If ideas were evaluated on their merits, we could push the efficient frontier ever higher, and reach it more often.

This selection is excerpted from Reinventing Congress for the 21^st Century, by Lawrence Susskind and Sol Erdman.