Implications of the WTP–WTA Disparity for Benefit–Cost Analysis

2015 ◽  
Vol 6 (1) ◽  
pp. 207-216 ◽  
Author(s):  
James K. Hammitt
Keyword(s):  
Economic Theory ◽  
Cost Analysis ◽  
Fundamental Question ◽  
Willingness To Accept ◽  
Benefit Cost Analysis ◽  
The Difference ◽  
The Cost ◽  
Benefit Cost ◽  
Benefits And Costs ◽  
Willingness To Accept Compensation

Differences between estimated willingness to accept compensation (WTA) and willingness to pay (WTP) that are larger than can be explained by standard economic theory raise questions about which measures should be used for benefit–cost analysis (BCA). These differences do not create a new problem but accentuate an existing one: the fact that the Kaldor–Hicks compensation test is ambiguous when its two components conflict. This conflict is more likely when the difference between WTA and WTP measures of a change is large. In many cases, the same individuals receive benefits and incur costs from a policy change and their preferences for the policy cannot depend on whether they ask whether their WTP for the benefit exceeds the cost they will incur or their WTA to forgo the benefit exceeds the cost they will save. In cases where benefits and costs are incurred by different people, it seems more useful to evaluate the fundamental question – whether the benefits to some justify the harms to others – than to obscure this question through a technical debate about valuation measures.

scholarly journals A retrospective assessment of the costs of EPA’s 1998 Locomotive Emission Standards

2014 ◽  
Vol 5 (2) ◽  
pp. 285-314 ◽  
Author(s):  
Elizabeth Kopits
Keyword(s):  
Cost Analysis ◽  
Total Cost ◽  
Benefit Cost Analysis ◽  
Retrospective Assessment ◽  
Emission Standards ◽  
Ex Post ◽  
Data Limitations ◽  
The Cost ◽  
Benefit Cost ◽  
Benefits And Costs

Abstract:While the need to update EPA benefit-cost analysis to reflect the most recent science is broadly acknowledged, little work has been done examining how well ex ante BCAs estimate the actual benefits and costs of regulations. This paper adds to the existing literature on ex post cost analyses by examining EPA’s analysis of the 1998 Locomotive Emission Standards. Due to data limitations and minimal ability to construct a reasonable counterfactual for each component of the cost analysis, the assessment relies mainly on industry expert opinion, augmented with ex post information from publicly available data sources when possible. The paper finds that the total cost of bringing line-haul locomotives into compliance with the 1998 Locomotive Emission Standards rule remains uncertain. Even though the initial per-unit locomotive compliance costs were higher than predicted by EPA, total costs also depend on the number of locomotives affected by the regulation. Over 2000–2009, the number of newly built line-haul locomotives was higher but the number of remanufactured line-haul locomotives was lower than EPA’s estimate.

Accounting for the Distribution of Benefits and Costs in Benefit–Cost Analysis

2020 ◽  
pp. 1-21
Author(s):  
James K. Hammitt
Keyword(s):  
Cost Analysis ◽  
Decision Makers ◽  
Policy Choice ◽  
Alternative Evaluation ◽  
Benefit Cost Analysis ◽  
Transfer Programs ◽  
Net Benefits ◽  
Benefit Cost ◽  
Benefits And Costs

Abstract Benefit–cost analysis (BCA) is often viewed as measuring the efficiency of a policy independent of the distribution of its consequences. The role of distributional effects on policy choice is disputed; either: (a) the policy that maximizes net benefits should be selected and distributional concerns should be addressed through other measures, such as tax and transfer programs or (b) BCA should be supplemented with distributional analysis and decision-makers should weigh efficiency and distribution in policy choice. The separation of efficiency and distribution is misleading. The measure of efficiency depends on the numéraire chosen for the analysis, whether monetary values or some other good (unless individuals have the same rates of substitution between them). The choice of numéraire is not neutral; it can affect the ranking of policies by calculated net benefits. Alternative evaluation methods, such as BCA using a different numéraire, weighted BCA, or a social welfare function (SWF), may better integrate concerns about distribution and efficiency. The most appropriate numéraire, distributional weights, or SWFs cannot be measured or statistically estimated; it is a normative choice.

scholarly journals Integrated Undergraduate Management Education: An Informal Benefit / Cost Analysis

2011 ◽  
Vol 1 (3) ◽  
pp. 57
Author(s):  
William L. Casey, Jr.
Keyword(s):  
Cost Analysis ◽  
Management Education ◽  
Assessment Data ◽  
Benefit Cost Analysis ◽  
Core Program ◽  
Benefit Cost ◽  
Benefits And Costs

This paper seeks to contribute to the literature of management education by evaluating assessment data on Babson Colleges integrated undergraduate management core program (IMC). Transitions from functionally isolated curricula to more integrated alternatives involve both benefits and costs, accruing to faculty, students and sponsoring institutions. The relative benefits and cost of the Babson program are weighted based on recent assessment initiatives at the college.

scholarly journals The Potential Economic Impact of Biotechnology and Related Research on the Forest Sector

1989 ◽  
Vol 65 (3) ◽  
pp. 185-189 ◽  
Author(s):  
F. L. C. Reed
Keyword(s):  
Cost Analysis ◽  
Financial Support ◽  
Forest Community ◽  
Forest Sector ◽  
Central Theme ◽  
Manufacturing Plants ◽  
Related Research ◽  
Benefit Cost Analysis ◽  
The Cost ◽  
Benefit Cost

The Canadian forest sector is at a critical juncture in maintaining its competitive position internationally. One reason is the difficulty that we are experiencing in holding the line on the costs of timber and its processing. The expenditure on silviculture alone is often in the range of 10-20% of the cost of delivering roundwood to manufacturing plants. The entire forest community is counting of forestry science, and especially biotechnology, to enhance industry viability and provide solutions to problems with environmental quality. However, the funding of forestry R&D has always been handicapped by our inability to argue persuasively for science budgets. The central theme of this paper is that the application of biotechnology and other science to forestry certainly does pay. A synthesis of traditional and newer approaches to benefit-cost analysis is recommended to assist science managers in making their case for financial support.

A Retrospective Benefit-Cost Analysis on the Elwha River Restoration Project

2019 ◽  
Vol 11 (1) ◽  
pp. 76-100
Author(s):  
Allen Bellas ◽  
Lea Kosnik
Keyword(s):  
Cost Analysis ◽  
River Restoration ◽  
River Ecosystem ◽  
Elwha River ◽  
Benefit Cost Analysis ◽  
Current State ◽  
Ex Post ◽  
Original Analysis ◽  
The Cost ◽  
Benefit Cost

AbstractIn 1992, Congress passed The Elwha River Ecosystem and Fisheries Restoration Act with the goal of “full restoration of The Elwha River Ecosystem and native anadromous fisheries.” As part of that act, the federal government was required to produce a benefit-cost analysis on dam removal of the Elwha and Glines Canyon dams, which was published in 1994. This article revisits that initial 1994 benefit-cost analysis; background on its methods and assumptions is given, comparisons are made to current state-of-the-art techniques in benefit-cost analysis, and an ex post benefit-cost analysis of the project is conducted for comparison purposes. We find that the cost and scope of the project exceeded original expectations, the cost of the foregone electricity generation was less than expected, and that anticipated recreational and fisheries benefits were both delayed, and lower, than expected. Furthermore, issues such as the value of hatchery-spawned versus wild anadromous fish seem not to have been anticipated in the original analysis, highlighting the fact that in doing an ex ante analysis, researchers must expect that unexpected factors may influence the ex post results of any project.

The Benefits and Costs of Slot Machine Gambling

2013 ◽  
pp. 636-669
Author(s):  
Scott Farrow ◽  
Chava Carter
Keyword(s):  
Cost Analysis ◽  
Empirical Studies ◽  
Slot Machine ◽  
Additional Research ◽  
Slot Machines ◽  
Economic Welfare ◽  
Benefit Cost Analysis ◽  
Benefit Cost ◽  
Benefits And Costs ◽  
Machine Gambling

This chapter reviews the basic economic welfare criteria for slot machines, as implemented via benefit-cost analysis. More specifically, it provides a conceptualization of the benefits and costs of slot machines, as well as a scorecard for key elements of a benefit-cost analysis. The chapter also presents several illustrative empirical studies and discusses areas for additional research.

scholarly journals Behavioral economics and policy evaluation

2014 ◽  
Vol 5 (1) ◽  
pp. 89-109 ◽  
Author(s):  
Timothy J. Brennan
Keyword(s):  
Cost Analysis ◽  
Willingness To Pay ◽  
Behavioral Economics ◽  
Policy Evaluation ◽  
Direct Democracy ◽  
Cognitive Biases ◽  
Policy Issues ◽  
Benefit Cost Analysis ◽  
Benefit Cost ◽  
Benefits And Costs

Abstract:Behavioral economics posits a number of cognitive biases and limitations, which raises questions as to whether revealed willingness to pay equals true willingness to pay. If so, benefit-cost analysis, with a number of methodological advantages, would need to be replaced. Prior analyses of the issue by Sunstein, Sugden, and Bernheim and Rangel fail to offer guidance that would avoid substituting centralized judgments for decentralized information on benefits and costs. Alternatives including using post-implementation valuations, libertarian paternalism, and direct democracy on policy issues also have conceptual or practical limitations. A tentative suggestion is democratic delegation, somewhat appealing because it is already applied to cope with bounded rationality and non-efficiency values. Viewing benefit-cost analysis as a market analogue, and restricting the domain of behavioral economics to uninformed consumers, may be useful guides. The most important guidance may be to require very strong evidence of substantial choice failure before abandoning benefit-cost analysis.

scholarly journals Hazard Identification and Risk Assessment with Recommended Alternative Solutions Using the Benefit Cost Analysis Method

Tibuana ◽  
2021 ◽  
Vol 4 (02) ◽  
pp. 120-124
Author(s):  
Rina Sandora ◽  
Fani Sandy Putra ◽  
Galih Anindita
Keyword(s):  
Risk Assessment ◽  
Cost Analysis ◽  
Hazard Identification ◽  
Benefit Cost Analysis ◽  
Analysis Calculation ◽  
Gas Detector ◽  
The Cost ◽  
Benefit Cost ◽  
Alternative Solutions

Determination of hazard identification and risk assessment on the company can not be separated from the calculation of the cost budget. The aim is to provide recommendations and calculate the profit rate using the Benefit Cost Analysis (BCA) method so that the company will more easily determine the most appropriate and needed alternative in the company. From the incremental analysis calculation, an alternative solution and value obtained from BCA are gas detector H2S B / C ratio 1.14, crane certification B / C ratio 3.66, welding helmet B / C ratio value 5.53, wire rope B / C ratio value of 5.19, O2 detector value of B / C ratio 6.11, small handtruck value of B / C ratio 18.1, fire dry chemical powder B / C ratio value of 22.27, N2 gas detector value of ratio B / C 1.53.

Implementing Highway Safety Manual Life-Cycle Benefit–Cost Analysis of Safety Improvements

2017 ◽  
Vol 2636 (1) ◽  
pp. 23-31
Author(s):  
Jordan B. Frustaci ◽  
Mitsuru Saito ◽  
Grant G. Schultz
Keyword(s):  
Life Cycle ◽  
Cost Analysis ◽  
Reliable Method ◽  
Highway Safety ◽  
Cost Analyses ◽  
Benefit Cost Analysis ◽  
Highway Safety Manual ◽  
State Highway ◽  
The Cost ◽  
Benefit Cost

The Highway Safety Manual (HSM) lists four methods for determining the change in crash severity in order of reliability. The life-cycle benefit–cost analysis currently used by the Utah Department of Transportation is similar to the least reliable method. To provide a tool to perform the most reliable method defined by the HSM—the predictive method—this research developed a spreadsheet-based tool to allow department engineers to perform life-cycle benefit–cost analyses for the 11 roadway segment types included in the HSM. The tool can be used to analyze the cost-effectiveness of safety-related improvements identified by the Utah crash prediction model, which was previously developed to identify safety hot spots on the state highway system. The concept and the spreadsheet layout are presented by using the rural two-lane, two-way highway spreadsheet as an example. Then a case of a rural two-lane, two-way highway with two selected countermeasures is presented to demonstrate the use of this spreadsheet to compare their benefit–cost ratios. One important aspect associated with life-cycle benefit–cost analyses of safety-related improvements is the cost of implementing such improvements. Safety-related improvements are often included in larger construction contracts and such costs vary significantly, depending on the way they are included in the larger contracts. Hence, construction costs of safety-related improvements—such as initial cost, periodic rehabilitation cost, and annual maintenance costs—must be prepared outside this spreadsheet by the user.

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