Essential Elements of Policy Memos

1. Policy issues: brief statement of (a) the specific policy issues to be addressed in the memo, (b) the aspects of the issues that the analysis covers, and (c) thewider policy context within which to view the specific policy under consideration.

2. Method of analysis: intuitive summary of (a) the basic logic of the method of analysis to be used; (b) why the method is appropriate for the particular policy question being studied; (c) how extensively the method has been applied in academic and policy analyses, locally and abroad; (d) the principal strengths and limitations of the method; and (e) the main qualifications that the method entails.

3. Information needs: summary listing of (a) the essential data requirements for the analysis, (b) complementary information that assists in the interpretation of results but is not essential for application of the method, (c) principal assumptions used for exogenous parameters or missing data, and (d) historical information used to provide a context for interpretation of the results.

4. Interpretation of results: full explanation of (a) the results obtained from analysis of the empirical information in the context of the selected method; (b) the sensitivity of the base-case results to changes in key data, parameters, or assumptions; (c) the meaning of the results within the selected method and within the context of the policy issue being studied; and (d) qualification of the results arising from limitations inherent in the method selected and from missing information.

5. Implication of results for national interest groups: brief summary of (a) the policy choices (usually to continue the status quo, do more, or do less), (b) the beneficiaries of successful research results, (c) the likely size of gains and losses for principal interest groups, (d) the main government objectives that would seem to be furthered or harmed by the policy choices, and (e) rough orders of

magnitude of the likely tradeoffs of government objectives associated with each of the policy choices.

6. International ramification of results: short discussion of (a) rough magnitude of the influence of policy choices on the country's quantities of import demands or export supplies of affected commodities, (b) likely impact of the policy choices on international flows of capital or labor, and (c) likely effect of the policy choices on the country's international diplomacy, including obligations to international organizations such as the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade.

7. Summary of the pros and cons of policy changes: single-paragraph summary that (a) highlights the lessons of the empirical analysis, (b) states clearly what the analysis contributes to the policy debate, and (c) identifies the likely consequences for interested parties of each of the policy choices, but does not offer any recommendations on selection among the policy choices.

Policy Issues

The first suggested element in the policy memo is a brief, clear statement of the specific policy issues addressed in the memo. This statement then should be both narrowed and broadened. It is narrowed by clarification of the exact aspects of the issue that can be addressed in the analysis, and it is broadened by the statement of how the specific issue fits into the wider policy context. The point is to be very clear about the limits of the analysis and about how the results fit into the bigger picture. This task is best done in one long or two short paragraphs of less than one page.

Method of Analysis

The next entry in the memo is an intuitive summary of the method of analysis that has been used to generate the results. This section is often the hardest one for analysts to write effectively because they tend to tell policy-makers more than they want or need to know. This part of the memo, above all others, must be clear and brief; otherwise, policy-makers will be forced to take the results on faith-since they will not have been able to understand how they were obtained-or to ignore the whole exercise.

How much to write depends in part on the complexity of the method. In general, however, the entire discussion of methods of analysis should not be more than one page. It should normally cover the five components outlined under the heading "Methods of Analysis" above. The first two are the most important. Even though the policy-maker probably is not interested in technical details, the basic logic of the method and why it is appropriate for the specific policy question being studied should be addressed. Stating these two things briefly can be difficult; teachers of economics often require several years before they understand methods well enough to explain them in simplified terms. Analysts new to a method thus might want to seek the assistance of those who have had more experience with it. The explanation needs to be made intuitive for policy-makers or it will fail.

The three other parts of summarizing the method are more straight-forward. Policy-makers should be told whether the method is well known, fairly standard, or experimental; what strengths and weaknesses of the method will influence the results for the policy in question; and what qualifications are usually made to results obtained with the method. The discussion in this part should focus solely on method; it should not anticipate the results that will be reported later in the memo.

Information Needs

The section on information needs is perhaps the easiest to prepare, because it is rarely difficult for policy-makers to follow a discussion of information needs. There is sometimes a temptation, however, for analysts to offer excessive and lengthy detail. The rule, again, is to provide only as much as the policy-maker needs to know. But because the results from the analysis are necessarily only as good as the quality of the information used to generate them, policy-makers do need to know a lot of the detail concerning data inputs. This section, therefore, often runs to two pages.

It is helpful to divide information needs into four categories. The most critical category lists the essential data requirements for the analysis. In all economic methods, certain kinds of data are so important that they drive the system, since the results depend fundamentally on them. The second category assists in interpretation of the results but is not required for application of the method. If data in the first category are unavailable, the method cannot be used; if data in the second category cannot be found, the method can still be used, but some of the richness in interpretation of the results is lost. Policy-makers also need to hear briefly about a third kind of information-the main assumptions used for parameters that are entered from outside the method and the procedures used to substitute for missing data. Finally, it is desirable to provide policy-makers with historical information to help them place the results in a broader context. Often, they will already have this background information.

Interpretation of Results

Because the interpretation of results is the central part of the exercise, it is located at the center of the policy memo. Here is where the analyst has to explain what the results are and what they mean for the issues under study. This process can require up to two pages (or even more for larger studies).

Experience points to a four-step procedure in setting forth and explaining results of policy analysis. The first and most obvious step is to catalog the principal results obtained from analysis of the empirical information through use of the selected method. The trick is to scale down the mass of possible results and to report only those that are specifically used in the policy discussion. Usually, a second category of results comes from carrying out sensitivity analysis-that is, changing key data, parameters, or assumptions to study the effects on major results. A third and more difficult task is explaining the meaning of the results, first in the context of the method and then for the policy issue under examination. This task requires a focus on the results from the viewpoint of information and insights that policy-makers will need to make better decisions. The fourth kind of interpretation is qualification of the meaning of the results because of inherent limitations in the method or missing information. The purpose is to let policy-makers know how much faith they should have in the results.

Implications of the Results for National Interest Groups

The extension and summary of the results for national interest groups include several lessons that policy-makers typically require. Five steps are suggested: (1) reviewing the policy choices; (2) pointing out the likely gains and losses with each of the main choices; (3) making rough estimates, if possible, of the magnitude of the gains and losses for each of the principal interest groups; (4) identifying the primary government objectives (efficiency, income distribution, food security) that would be affected positively or negatively by the policy choices; and (5) sketching estimates, where feasible, of the size of the likely tradeoffs of government objectives associated with each of the policy choices. The purpose is to clarify the impact of policy change on political interest groups and on government objectives. It is not desirable for the analyst to include personal value judgments about good or bad outcomes. The task of the analyst is to make objective evaluations of the likely impacts of potential policies. The policy-makers then must choose among the outcomes.

International Ramifications of the Results

The section on international ramifications of the results is especially important for countries that are large traders on international markets and key actors in the international economy. It is less critical for small developing countries that are price-takers in the world markets and that generally follow rather than make international economic trends. Still, all countries need to be concerned about the international ramifications of their domestic policy actions.

Policy-makers need to be warned if domestic policies might have negative international effects. What is suggested here is a brief summary-only one paragraph unless the international effects are unusually large. The summary might contain references to three possible kinds of international influences: international trade effects and consequent impacts on world prices, if any; international factor effects (foreign investment and labor migration); and implications for international diplomatic obligations, including consistency with membership in international organizations and impacts on bilateral foreign policy.

Summary of the Pros and Cons of Policy Choices

The executive summary of pros and cons of policy choices should consist of a single paragraph aimed at exceptionally busy people in the highest ranks of government. It should state the essence of the policy memo. Like the body of the memo, it should not recommend policy choices. The summary should focus on three topics: (1) lessons of the empirical analysis-that is, the principal results; (2) contributions of the analysis to the policy debate for the specific issues being addressed; and (3) identification of the likely consequences of the policy choices for interested parties.