scholarly journals Accounting for systematic risk in benefit-cost analysis: a practical approach

2013 ◽  
Vol 4 (3) ◽  
pp. 361-373 ◽  
Author(s):  
Jason Hansen ◽  
Jonathan Lipow
Keyword(s):  
Cost Analysis ◽  
Social Welfare ◽  
Systematic Risk ◽  
Welfare Loss ◽  
Practical Approach ◽  
Costs And Benefits ◽  
Simple Modification ◽  
Benefit Cost Analysis ◽  
Numerical Example ◽  
Benefit Cost

Circular A-94 specifies how analysts should discount costs and benefits of government projects, and thus how to account for risk. In this paper, we argue that the methods mandated by A-94 properly account for non-systematic and term risk, but not for systematic risk. A numerical example illustrates how improper accounting for systematic risk produces misleading results and social welfare loss. We conclude by proposing a simple modification of A-94’s procedures that would allow analysts to at least partially account for systematic risk.

The costs and benefits of benefit-cost analysis

1997 ◽  
Vol 2 (2) ◽  
pp. 195-221 ◽  
Author(s):  
GRACIELA CHICHILNISKY
Keyword(s):  
Cost Analysis ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Benefit Analysis ◽  
Costs And Benefits ◽  
Trade Cost ◽  
Benefit Cost Analysis ◽  
Benefit Cost

Among the tools of the economic trade, cost-benefit analysis is the most widely used in policy circles. Asking whether there is a role for cost-benefit analysis is like asking whether there is a role for the weatherman. Of course there is.

scholarly journals Is Mandatory Project Evaluation Always Appropriate? Dynamic Inconsistencies of Irreversible and Reversible Projects

2012 ◽  
Vol 3 (1) ◽  
pp. 1-31 ◽  
Author(s):  
Tatsuhito Kono ◽  
Hiromichi Notoya
Keyword(s):  
Cost Analysis ◽  
Social Welfare ◽  
General Equilibrium ◽  
Service Level ◽  
Transportation Services ◽  
Dynamic Inconsistency ◽  
Benefit Cost Analysis ◽  
Public Projects ◽  
Optimal Service ◽  
Benefit Cost

Benefit-cost analysis (BCA) is used to optimize investment in public projects. Indeed, in many countries, BCA is mandatory for provision of most public services. However, once BCA is mandated, residents can strategically alter their behaviors based on a dynamic inconsistency that the BCA-based optimal service level depends on residents’ behaviors. This paper discusses this dynamic inconsistency problem, taking transportation services as an example. We show that the problem may decrease both social welfare and the utility of residents as compared with the first-best case, and that the occurrence of second-best outcomes depends on the reversibility of the project and the general-equilibrium interdependency with another project.

scholarly journals Social Norms Information Treatments in the Municipal Water Supply Sector: Some New Insights on Benefits and Costs

2019 ◽  
Vol 05 (03) ◽  
pp. 1850026 ◽  
Author(s):  
Céline Nauges ◽  
Dale Whittington
Keyword(s):  
Cost Analysis ◽  
Water Supply ◽  
Social Norms ◽  
Water Use ◽  
Current Knowledge ◽  
Costs And Benefits ◽  
Benefit Cost Analysis ◽  
Municipal Water Supply ◽  
Municipal Water ◽  
Benefit Cost

Social norms comparisons are tools that are being used more and more often by energy and water utilities all over the world in order to induce households to conserve resources. Such conservation programs are appealing to utilities since they are an easy-to-implement alternative to raising prices and commonly result in short-term reductions in energy and water use of about 2–5%. However, the welfare effects of social norms programs are rarely discussed and assessed, especially in the context of municipal water supply. The purpose of this paper is to identify the costs and benefits of social norms information treatments (SNITs) to all social groups and to illustrate a conceptual framework for conducting a benefit–cost analysis of social norms treatments in the municipal water sector. We provide plausible estimates for the costs and benefits of social norms treatments to different affected groups in the municipal water supply sector using current knowledge for both developing and industrialized countries in order to show how practitioners can conduct a benefit–cost analysis of an SNIT for a specific water utility. Our calculations show that the outcome of a benefit–cost analysis of an SNIT is highly location-specific and likely subject to substantial uncertainty. We also present a simple benefit–cost analysis of a price increase that would lead to an equivalent initial reduction in household water use. The latter is found to be more likely to result in net benefits to the society as a whole in low- and middle-income countries, but we show that, in this case, households would have to bear most of the costs.

Should Benefit-Cost Analysis Include a Correction for the Marginal Excess Burden of Taxation?

2019 ◽  
Vol 10 (3) ◽  
pp. 379-403 ◽  
Author(s):  
Frits Bos ◽  
Thomas van der Pol ◽  
Gerbert Romijn
Keyword(s):  
Cost Analysis ◽  
Costs And Benefits ◽  
Policy Measure ◽  
Alternative Source ◽  
Tax System ◽  
Excess Burden ◽  
Benefit Cost Analysis ◽  
Tax Revenues ◽  
Marginal Excess Burden ◽  
Benefit Cost

AbstractThis paper provides an overview of theoretical, empirical, and practical arguments in favor of or against a correction for the marginal excess burden of taxation (MEB). Benefit-cost analysis (BCA) should be used to compare the costs and benefits of a policy measure and its major alternatives, and whenever relevant, also to compare different ways of financing this. The best pragmatic approach is then to assume first that a policy measure is financed out of general tax revenues and then that the MEB of these taxes is broadly counterbalanced by the benefits of redistribution of these taxes. The latter assumption is consistent with the preferences for equality in a country’s current tax system. It is a simple and politically neutral assumption, and it implies that the marginal cost of public funds is equal to 1 and that no correction is needed in BCAs for the MEB. This shortcut assumption does not imply that the tax system is optimal or that BCAs should be distributionally weighted. Choosing an alternative source of financing, i.e., other than general tax revenues, should be regarded as a separate policy measure that should be analyzed separately in a BCA, including its distortionary and distributive effects.

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