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49 Cards in this Set
- Front
- Back
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CBA |
-Policy assessment method -quantifies the value of policy consequences -in monetary terms |
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Net social benefits (NSB) |
Social Benefits - Social Cost NSB= B-C |
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2 Arguments against the use of CBA |
1.fundamental assumptions 2.Disagreement about isseus |
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fundamental assumptions of CBA |
-Utility must be maximized -Utility is tradable |
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Purpose of CBA |
Effective social decisionmaking through Efficient allocation of of resources |
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4 Types of CBA |
Ex ante Ex post In medias res Comparative |
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Ex ante |
Prior resources
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Ex poste |
at the end particular class |
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In medias res |
during |
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Comparative |
ex ante vs. ex post |
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Steps |
1. Alternatives 2. Standing 3. Impact categories 4. Predict 5. Monetize 6. Present Value 7. NPV 8. Sensitivity Analysis 9. Recommendation |
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Guardians |
-Ignores non-financial benefits -public resources as free good -high discount rates |
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Spenders |
-Expenditure as benefits -large, capital intensive -low discount rates
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Cost of CBA |
Time Skill Money Politics |
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NPV |
NPV= PV(B) - PV(C) |
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NPV > 0 |
select |
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NPV < 0 |
Not select |
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Different Time frames |
1. Rollover method 2. Equivalent Annual Net Benefits |
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problems with CPI
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commodity substitution effect
quality improvement effect |
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IRR
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discount rate at which the projects npv would equal 0
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horizon value
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npv at the end of the discounting horizon of all subsequant impact
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allocative efficiency
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resources deployed in their highest valued use in terms of goods and services they create
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pareto efficiency
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no alternative allocation can make at least one person better off without making anyone else worse off
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potential pareto frontier
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all feasible splits that allocate all resources
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pareto frontier
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the segment on the pareto frontier that gives each person at least as much as the status quo
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status quo
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at this point there is room for pareto improvement
not pareto efficient |
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net benefits and pareto efficiency
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if net benefits are positive then its possible to find a set of transfers that makes at least one person better off without making anyone worse off
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WTP
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willingness to pay
payment that one has to make or receive under the policy so one would be indifferent between status and policy |
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opportunity cost
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dollar value on inputs required to implement policies
alternatives |
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pareto efficient policies are impractical
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- information burden of measuring each ind.
- administratice burden of transfers - compensation induces people to overstate and understate |
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decision rule alternative to pareto
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adopt only policies that have positive net benefit
- feasible - max. aggeregate wealth - restribution wholesale possible - counters weight skew between organized and disorganized group |
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decision rule in practice
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1. adopt all with positive net benefits
2. if policies interfere or enhance, combination max. net benefit 3. benefit/cost =benefit cost ratio 4. ratio can be manipulated so choose highest net benefit 5.determine best combination for aggregate net |
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Arrow's Theorem conditions
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-transitive preference -alt 1 prefed ovwr 2 by all, then 2 should not be chosen -ranking of 2 alt shouldn't depend on other alts - no one person should have power |
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Arrow's Theorem
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any social choice rule that satisfies a basic set of fairness conditions could prodice illogical results
fail to ensure transitive social ordering of policy alts if all four cond. satisfied |
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WTP issues
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distribution of wealth
Arrow's theorem |
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assumptions about standing
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Jurisdictional def. of society
Jurisdictional Membership Exclusion of socially Unacceptable Preferences Inclusion of the Preferences of the future gen. |
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technical limit of cba
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not all impacts can be monetized
qualitiative cba |
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cost effective analysis
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quantified but not monetized
as much impact for a specific cost specific impact at lowest cost |
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other than efficiency
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multigoal analysis
distributionally weighted cba |
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multi goal analysis
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all policy alternatives should be compared in terms if all the relevant values
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distributionally weighted cba
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income wealth etc group
multiplied by weight factor |
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compensating variation
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amount of money a consumer is willing to pay to avoid a price change = amount required to return the consumer to the same level of utility prior to the price change
-going back to the original utility curve with money |
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equivalent variation
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alternative to compensating variation
amount of money paid by the consumer would cause the consumer to lose just as much utility as price increase same new indifference curve after the price increase. - moving to the new indifference curve with the same curve. |
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Marshallian. demand curve
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relationship between the price of q good and the quantity
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Hicksian demand curve
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relationship between the price of a good and the quantity demanded
assuming utility stays constant |
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Kaldor Hicks Efficiency
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everyone can be compensated to offset any potential costs
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prices in competitive market
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good estimates of benefit and cost
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observed prices in distorted markets
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poor measure of cost and benefit
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shadow pricing
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usednwhen observed prices don't reflect true social value of a good or prices don't exist (public goals)
observed prices are adjusted |
