scholarly journals Benefit-Cost Analysis of Environmental Projects: A Plethora of Biases Understating Net Benefits

2012 ◽  
Vol 3 (3) ◽  
pp. 1-25 ◽  
Author(s):  
Philip E. Graves
Keyword(s):  
Cost Analysis ◽  
Net Present Value ◽  
Environmental Policies ◽  
The United States ◽  
Benefit Cost Analysis ◽  
Marginal Costs ◽  
Big Picture ◽  
Technical Details ◽  
Benefit Cost ◽  
Proper Science

There are many reasons to suspect that benefit-cost analysis applied to environmental policies will result in policy decisions that will reject those environmental policies. The important question, of course, is whether those rejections are based on proper science. The present paper explores sources of bias in the methods used to evaluate environmental policy in the United States, although most of the arguments translate immediately to decision-making in other countries. There are some “big picture” considerations that have gone unrecognized, and there are numerous more minor, yet cumulatively important, technical details that point to potentially large biases against acceptance on benefit-cost grounds of environmental policies that have true marginal benefits greater than true marginal costs, both in net present value terms. It is hoped that the issues raised here will improve future conduct of benefit-cost analyses of environmental policies.

Evaluating Regulatory Impact Assessments in Education Policy

2018 ◽  
Vol 40 (3) ◽  
pp. 335-353
Author(s):  
Clive R. Belfield ◽  
A. Brooks Bowden ◽  
Viviana Rodriguez
Keyword(s):  
Cost Analysis ◽  
Federal Government ◽  
Best Practice ◽  
Net Present Value ◽  
Social Benefit ◽  
Present Value ◽  
Benefit Cost Analysis ◽  
Regulatory Decision ◽  
Regulatory Impact ◽  
Benefit Cost

Benefit–cost analysis is an important part of regulatory decision-making, yet there are questions as to how often and how well it is performed. Here we examine 28 Regulatory Impact Assessments performed by the federal government on education regulations since 2006. We find many Regulatory Impact Assessments estimated costs, albeit using informal methods, but most failed to adequately report benefits. Also, most studies did not estimate net present value or clearly report methodological assumptions. In reviewing the relatively high quality studies we identified a number of discrepancies from best practice. Most importantly, few Regulatory Impact Assessments attempted a social benefit–cost analysis: Most examined “administrative burdens” from compliance with legislation. This alternative focus on administrative burdens has significant implications for economic evaluation in practice.

A Social Benefit Cost Analysis of Special Economic Zones in India: A Study of Noida SEZ

2018 ◽  
Vol 66 (1-2) ◽  
pp. 139-153
Author(s):  
Babita ◽  
N. K. Bishnoi
Keyword(s):  
Cost Analysis ◽  
Net Present Value ◽  
Social Benefit ◽  
Cost Ratio ◽  
Special Economic Zones ◽  
Positive Role ◽  
Benefit Cost Analysis ◽  
Indian Economy ◽  
Benefit Cost ◽  
Economic Zones

Special economic zones (SEZs) in India have been in news due to their usefulness vis-à-vis adverse effects on economy. A good number of opponents opine that costs incurred by SEZs outweigh the benefits. However, it cannot be denied that SEZs have played a positive role in the welfare of the economy. Thus, to examine this issue, we carried out a social benefit–cost analysis (SBCA) on Noida Special Economic Zone (NSEZ) within the context of enclave model for the period of 2009–2016. The result shows the positive net present value and benefit–cost ratio greater than one under methodological assumptions. This infers that NSEZ is contributing towards the welfare of Indian economy. One interesting findings of the study is that NSEZ is generating positive gains to economy with the absence of various market distortions which could otherwise reduce the realised benefits. Hence, need arises to eliminate such distortions from outside area of economy also to make it competitive at global level. Therefore, it can be concluded that competitiveness of the Indian economy can be enhanced with the removal of market distortions and liberalisation of rules, regulation and policies for economic development activities. Hence, the Government of India should emphasise and make regulations and policies that encourage competitiveness of the industries. JEL Classification: D04, D61, F13, H2, J01

The Consent Justification for Benefit–Cost Analysis

2020 ◽  
Vol 11 (2) ◽  
pp. 319-340
Author(s):  
Richard O. Zerbe
Keyword(s):  
Cost Analysis ◽  
Net Present Value ◽  
Economic Literature ◽  
Present Value ◽  
Benefit Cost Analysis ◽  
Benefit Cost

AbstractThis paper provides a Consent Justification for benefit–cost analysis (BCA). The Consent Justification is based on a tendency toward actual compensation. A substantial justification for using BCA as a tool is the actual Pareto test, called the Consent Justification, in combination with the net present value criterion for individual projects. The traditional justification, the potential compensation test (PCT), is unsatisfactory on several grounds. In addition, the PCT occupies the uneasy position of being the source of extended criticisms in the economic literature and especially in the legal and philosophy literature. The argument for the Consent Justification lies not only in the deficiencies of the PCT, but also, especially, in a showing through simulation that all tend to gain across a portfolio of projects which is not large but rather robust with respect to errors and assumptions.

European and International Perspectives on Benefit-Cost Analysis: Symposium Introduction

2021 ◽  
Vol 12 (1) ◽  
pp. 55-63
Author(s):  
Massimo Florio
Keyword(s):  
United States ◽  
Cost Analysis ◽  
Impact Analysis ◽  
The United States ◽  
The European Union ◽  
Public Project ◽  
Current Form ◽  
Benefit Cost Analysis ◽  
Regulatory Impact Analysis ◽  
Benefit Cost

AbstractThe idea of assessing the costs and benefits of public and private projects is not new to Europe, dating back to studies at the Ecole des Ponts et Chaussees (Paris) in the XIX century. Later on, in the last century, Benefit-Cost Analysis (BCA) in its current form has been more extensively used in the United States than in Europe. In the last two decades, however, there has been a rapid increase in its use in a number of European countries and at the European Union (EU) level. European governments often undertake tasks that would be done by private companies in the United States, such as the provision of transport, energy, water and waste management, health services, etc. In the United States the focus of BCA has often been regulatory impact analysis, rather than public project evaluation. One might, therefore, expect that Europeans might approach some things differently from their American counterparts and that new insights might result from these efforts. The articles in this symposium, taken from the recent European Society for Benefit-Cost Analysis (SBCA) conference in Toulouse, illustrate some of these differences and some converging themes.

scholarly journals Designing Smarter Regulation with Improved Benefit-Cost Analysis

2010 ◽  
Vol 1 (1) ◽  
pp. 1-19 ◽  
Author(s):  
Robert Hahn
Keyword(s):  
Cost Analysis ◽  
Economic Model ◽  
The United States ◽  
Primary Objective ◽  
Normative Theory ◽  
Benefit Cost Analysis ◽  
Special Cases ◽  
Standard Textbook ◽  
The Government ◽  
Benefit Cost

AbstractBenefit-cost analysis is required for many regulatory decisions in the United States and in other countries. In this paper, I examine a standard textbook model that is used in benefit-cost analysis as it is actually applied to environmental policy and other areas of regulation. My primary objective is to suggest how including some key factors in the analysis could promote the development of smarter regulation.I begin by presenting a standard economic model for government intervention in markets, which balances benefits and a narrow definition of costs. I then introduce a richer normative theory that considers several political and economic costs that are frequently not considered in analyzing real-world applications. Examples include costs associated with rent seeking, design and implementation, and raising revenues. The richer theory suggests that the government should supply less of a good, or ask the private sector to provide less of that good, than the standard economic model suggests. The reason is that intervening in markets is often more costly than the standard model assumes. In special cases, the theory provides guidance on the setting of socially optimal taxes and subsidies. I then explore how the theory needs to be modified in the presence of biased estimates of benefits and costs. I conclude with a discussion of how the theoretical framework can be applied to the actual design of regulatory policy.

Benefit-Cost Analysis of the Perry Preschool Program and Its Policy Implications

1985 ◽  
Vol 7 (4) ◽  
pp. 333-342 ◽  
Author(s):  
W. Steven Barnett
Keyword(s):  
Cost Analysis ◽  
Net Present Value ◽  
Preschool Education ◽  
Economic Benefits ◽  
Policy Implications ◽  
Social Investment ◽  
Preschool Program ◽  
Benefit Cost Analysis ◽  
Cost Reductions ◽  
Benefit Cost

Benefit-cost analysis is applied to the Perry Preschool Program and its long-term follow-up in order to examine preschool education as a social investment. Economic values are estimated for program cost, child care provided, later education cost reductions, increased higher education cost, delinquency and crime cost reductions, earnings increases, and welfare cost reductions. The net present value of benefits and costs is positive, indicating that the program was a profitable social investment. Analysis of the distribution of effects revealed that taxpayers obtained most of the economic benefits and that their benefits exceeded costs. Generalizability of the findings and their implications for public policy are examined.

Benefit–cost analysis as a mechanism for evaluating conservation policies in developing countries

1997 ◽  
Vol 2 (2) ◽  
pp. 195-221 ◽  
Author(s):  
PRIYA SHYAMSUNDAR
Keyword(s):  
Developing Countries ◽  
Cost Analysis ◽  
Health And Safety ◽  
The United States ◽  
Industrialized Countries ◽  
Environmental Health And Safety ◽  
Benefit Cost Analysis ◽  
Conservation Policies ◽  
Benefit Cost ◽  
The Tropics

Can benefit-cost analysis (BCA) be used in the developing world in the same way in which it is used in developed market economies? The paper by Arrow et al. makes a good case for employing BCA to evaluate environmental, health, and safety regulations in the United States. It offers a number of principles to guide the use of benefit-cost analyses, some of which can be applied to developing countries. Conservation policies in the tropics can help illustrate the relevance of BCA for evaluating regulations in less industrialized countries. I use a set of studies on the Mantadia National Park to show in practical terms how and when BCA can serve as an effective evaluative tool.

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