Filtered by author: Tonya Wade Clear Filter

On Balance: China's Belt and Road Initiative: New Research Agenda in Cost-Benefit Analysis

China is investing trillions of dollars in hundreds of projects, mainly infrastructures under its Belt and Road Initiative. This Initiative termed the BRI seeks to increase trade and contribute to global economic growth through increased connectivity, ports' development, building transport networks, pipelines, and other major infrastructures stretching from the northwestern part of China through Central Asia and Middle East through Africa and onwards to Europe.

We discuss some implications of this BRI in the context of new developments and key challenges it faces, not widely covered in the literature. Specifically, we identified three major areas which require immediate attention if any success of the BRI is to materialize. Such new areas may constitute the new research agenda for Cost-Benefit Analysis. One concern is the issue of NIMBYs (Not In My Backyard) which essentially deals with siting decisions. The second concern has to do with applying Cost-Benefit Analysis to BRI countries and that is whether the framework of conventional Cost-Benefit Analysis remain the same as with applications in developed countries. And, thirdly, the arrival of competing initiatives from the United States and European Union on the BRI. We discuss some conflict resolution instruments to siting issues and the role of auctions. Highlights from the new Health and Digital Silk roads are also presented.

Read More

On Balance: Best Practices for Using Hedonic Property Value Models

Hedonic property value regression is a leading technique for estimating how much consumers are willing to pay for nonmarket amenities. The prevailing style of estimation has evolved in recent years to incorporate insights from the “credibility revolution” in applied economics, with high expectations for data quality and econometric transparency. At the same time, recent research has improved our understanding of how parameters identified by quasi-experimental designs relate to welfare measures. This post describes an article summarizing modern best practices for developing credible hedonic research designs and valid welfare interpretations of the estimates. I wrote the article together with Kelly Bishop, Spencer Banzhaf, Kevin Boyle, Kathrine von Gravenitz, Jaren Pope, Kerry Smith, and Christopher Timmins. It was published in the Summer 2020 issue of the Review of Environmental Economics and Policy as part of a symposium on best practices for using revealed preference methods for nonmarket valuation of environmental quality. A 20-minute video summary is posted here.

There have been thousands of hedonic property value studies since the model was formalized in the 1970s and the pace has accelerated due to advances in data, econometrics, and computing power. The model’s enduring popularity is easy to understand. It starts with an intuitive premise that is economically plausible and empirically tractable. The model envisions buyers choosing properties based on housing attributes (e.g., indoor space, bedrooms, bathrooms) and on location-specific amenities (e.g., air quality, park proximity, education, flood risk). In the absence of market frictions, spatial variation in amenities can be expected to be capitalized into housing prices. When buyers face the resulting menu of price-attribute-amenity pairings, their purchase decisions can reveal their marginal willingness to pay (MWTP) for each of the amenities. In principle, estimating MWTP is straightforward. In practice, several key modeling decisions must be made. These include defining the market, choosing appropriate measures of prices and amenities, selecting an econometric specification, and developing a research design that isolates exogenous variation in the amenity of interest.

Read More

On Balance: Modernizing Regulatory Review

Modernizing Regulatory Review, a Presidential memorandum published January 20, 2021, serves as a preface to the regulatory policies of the Biden Administration. As such, the memorandum complements three executive orders (E.O 13993: Revocation of Certain Executive Orders Concerning Federal Regulation; E.O. 13990: Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis; and E.O. 13979: Ensuring Democratic Accountability in Agency Rulemaking) that collectively rescind the previous administration’s regulatory policy. The regulatory policy foreshadowed in the memorandum and other documents, however, goes beyond rescinding the Trump administration’s program or restoring previous regulatory regimes.

Modernizing Regulatory Review calls for “improving and modernizing” regulatory review. Regulatory review includes, among other things, the benefit-cost and other analyses that Executive Order 12866 (Regulatory Planning and Review) requires for all significant executive branch regulations; agencies include these analyses in the Regulatory Impact Analyses or Economic Analyses reviewed by the Office of Information and Regulatory Affairs. Regulatory review as now practiced has been in place for 28 years, although there have been occasional hiccups, such as in the last administration when -- most notably -- E.O. 13771 made regulatory costs primary and created new regulatory categories in parallel to existing measures.

Read More

On Balance: Quantifying the Non-Use Value of Biodiversity in Cost–Benefit Analysis

What is important cannot be measured?
According to a famous expression1, the most important things cannot be measured. This seemed also to be true for biodiversity in cost-benefit analysis, in particular for the impact on non-economic benefits of biodiversity. However, this is not true anymore, as for over a decade in the Netherlands a methodology known as biodiversity points is being applied for this purpose (see Bos and Ruijs, 2021). Biodiversity points are quite similar to the quality-adjusted life years (QALY) used for cost-effectiveness analysis of health care treatments. Biodiversity points provide a quality-adjusted measure of the changes in the quantity of biodiversity. It is not based on the preferences and information of consumers or citizens, but is based in a standardized way on the expert-opinion of ecologists. The unit of measurement is not dollars or euros but is the number of biodiversity points.

For many cost-benefit analyses (CBA), properly assessing the welfare effects of a policy measure on biodiversity is important. This does not only apply to CBA on conservation or stimulation of biodiversity, but also to CBA on other policy areas such as mobility, agriculture and water safety, as the policy measures in these policy areas often have impacts on biodiversity. For example, a new road connecting two cities through a forest is good for mobility but has also impact on the value of biodiversity. The value of the forest for various economic uses may increase due to the reduction in travel time for visitors but the non-use value, e.g. the existence value and the value for future generations of the forest and the biodiversity of its species, may be affected severely by fragmenting the forest and by increasing traffic, pollution and visitors.

Read More

On Balance: Using Social Media and Machine Learning for Violence Prevention

The revelations of the Facebook Files have again focused public attention on the spread of misinformation, hate speech and incitement to violence on Facebook. Youths across the globe use Facebook's Instagram and similar platforms to share violent videos. The question inevitably arises if authorities could use these platforms for violence prevention.

Bystander programs represent an established prevention measure. They motivate people to intervene in violent situations and teach the skills for safe and effective intervention. Studies suggest that bystander programs could reduce violent victimization and perpetration. However, face-to-face programs are cost-intensive and difficult to scale. Online programs face the challenge of reaching enough relevant participants. Social media can help on both counts. They allow reaching large audiences at relatively low cost and precisely addressing individuals at risk, i.e. micro-targeting.

Read More

On Balance: So You Want to Conduct a Benefit-Cost Analysis? Experts Share Their Stories

This blog series is a partnership of the Society for Benefit-Cost Analysis On Balance blog and Dr. Zoë Plakias’ Spring 2021 Benefit-Cost Analysis (AEDECON 5330) class at The Ohio State University. Students interviewed experts in benefit-cost analysis to learn about what they do and why they do it. All interviews have been edited for brevity and clarity with the help of Dr. Plakias and are shared with the approval of the interviewer and interviewee.

  • Expert: Dr. Charles Griffiths
  • Interviewer: Katrina Hadley

Dr. Charles Griffiths is a Senior Economist at the U.S. Environmental Protection Agency. He has also taught courses on benefit-cost analysis at Johns Hopkins University and the University of Maryland and served as a Senior Economist for Environment, Energy and Natural Resources on the Council of Economic Advisers during the George W. Bush administration.

Read More

On Balance: Why aren’t BCAs Done in Sweden for Environmental, Energy and Climate Policy? And Can Something Be Done About It?

Monetizing the impact of regulation in order to weigh its benefits against its costs is comme il faut in the US, see, e.g., a recent blog post by Dan Ackland in On Balance. In Sweden, this is not the case. Three laws govern the requirements for background analyses ahead of regulation in Sweden: National Budget Law, Authority Regulation, and Ordnance on impact assessment in regulation. These stipulate that consideration must be taken of costs to the state budget, and to firms, but not to individual citizens or the society as a whole. As a consequence, if a benefit-cost analysis (BCA) is conducted ahead of environmental, energy, and climate policymaking (a big if), it is often of a very poor quality (Swedish Environmental Protection Agency, 2020; Hammes, Nerhagen, & Fors, 2021).

 

Read More

On Balance: BCA, the Choice of Numéraire, and Weighted BCA

Benefit-cost analysis, as usually practiced, sums the monetary values of effects on individuals. It can be justified by the potential compensation test: if the total monetary gain to the “winners” (those who gain from a policy) exceeds the total monetary loss to the “losers” (those who are harmed), the “winners” could (in principle) pay compensation to the “losers” so that everyone would judge herself better off with the combined policy and compensation than without. The idea is that by summing the net benefits across individuals, BCA measures “efficiency” or the size of the social pie, and that questions about distribution can be evaluated separately. Logically, policies that expand the social pie permit everyone to have a bigger slice; a smaller pie guarantees that at least some people get a smaller slice. 

 

Read More
1 Comments

On Balance: Benefit and Cost Considerations in Evidence-Based Foreign Policy

Over the course of the past few years, there has been greater attention and scrutiny as to the high cost of America’s “Endless Wars” and over the past few months, alarms have sounded at the estimated price tag of $2.313 trillion in treasure and approximate 243,000 in direct lives lost from the War in Afghanistan (2021, Brown University, Watson Institute Costs of War Project) as well as calls for resignations at the collapse of Kabul. Similarly, the question of what were the benefits, if any at all, and the associated and more philosophical question of “Was it Worth it?” are even more difficult to explain and justify. The answer to these questions will be for each individual and generation to ponder, but it is expected that government leaders and policymakers should fully consider and take into account the benefits and costs prior to the declaration of war – not years and certainly not decades after the fact.

 

Read More

On Balance: So You want to Conduct a Benefit-Cost Analysis? Experts Share Their Stories

This blog series is a partnership of the Society for Benefit-Cost Analysis On Balance blog and Dr. Zoë Plakias’ Spring 2021 Benefit-Cost Analysis (AEDECON 5330) class at The Ohio State University. Students interviewed experts in benefit-cost analysis to learn about what they do and why they do it. All interviews have been edited for brevity and clarity with the help of Dr. Plakias and are shared with the approval of the interviewer and interviewee.

  • Expert: Dr. James Hammitt
  • Interviewer: Loryssa Lake

Dr. James Hammitt is a Professor of Economics and Decision Sciences at Harvard University. He is also the director for the Harvard Center for Risk Analysis and has affiliations with the Harvard University Center for the Environment, Harvard School of Public Health, Harvard Center for Risk Analysis, Harvard Environmental Economics Program, the Harvard China Project, and a joint appointment at the Toulouse School of Economics

Read More

On Balance: So You want to Conduct a Benefit-Cost Analysis? Experts Share Their Stories

This blog series is a partnership of the Society for Benefit-Cost Analysis On Balance blog and Dr. Zoë Plakias’ Spring 2021 Benefit-Cost Analysis (AEDECON 5330) class at The Ohio State University. Students interviewed experts in benefit-cost analysis to learn about what they do and why they do it. All interviews have been edited for brevity and clarity with the help of Dr. Plakias and are shared with the approval of the interviewer and interviewee.

  • Expert: Dr. Sandra Hoffmann
  • Interviewer: Melissa Ferruso

Dr. Sandra Hoffmann is a Senior Economist with the Food Economics Division of the USDA Economic Research Service (ERS). She received her undergraduate education at Iowa State University and went on to earn a J.D. from the University of Michigan Law School. She holds a Ph.D. from the Department of Agricultural and Resource Economics, University of California, Berkeley and an M.A. in Agricultural Economics from the University of Wisconsin-Madison.  She worked on pesticide regulation as an attorney.  She also served on faculty at the University of Wisconsin-Madison and was a research fellow at Resources for the Future before joining USDA Economic Research Service. Most of her work with the USDA concentrates on food safety and on valuation of the health benefits related to public policies. I had the wonderful opportunity to meet with Dr. Hoffmann to discuss her work with the USDA, as well as the career and education paths that brought her to where she is today.

Read More

On Balance: So You want to Conduct a Benefit-Cost Analysis? Experts Share Their Stories

This blog series is a partnership of the Society for Benefit-Cost Analysis On Balance blog and Dr. Zoë Plakias’ Spring 2021 Benefit-Cost Analysis (AEDECON 5330) class at The Ohio State University. Students interviewed experts in benefit-cost analysis to learn about what they do and why they do it. All interviews have been edited for brevity and clarity with the help of Dr. Plakias and are shared with the approval of the interviewer and interviewee.

  • Expert: Lisa A. Robinson
  • Interviewer: Katherine Bowman

Lisa A. Robinson is Deputy Director of the Center for Health Decision Science and Senior Senior Research Scientist at the Center for Health Decision Science and Center for Risk Analysis at the Harvard T.H. Chan School of Public Health. She served as the President of the Society for Benefit-Cost Analysis in 2014.

Read More