Filtered by category: 2021 Archive Clear Filter

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. 

 

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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.

 

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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

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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.

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On Balance: 120 Million Crimes in the US in 2017 Imposed Losses Valued at $2.6 Trillion: First Estimates of Total Costs in 25 Years

Benefit-cost analyses of criminal justice policies, early childhood education, at-risk youth programs, and other interventions that reduce crime have moved beyond the academic arena into applications by both state and federal policy makers (Welsh, Farrington, & Gowar, 2015). Despite this growing interest in benefit-cost analysis, our recent article in the Journal of Benefit-Cost Analysis (Miller, Cohen, Swedler, Ali, & Hendrie, 2021), provides the first estimates in 25 years of the numbers and total costs of crime against individuals in the US. 

 

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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.

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On Balance: What Should OIRA Do about Equity, Justice, Dignity and Moral Responsibility?

On his first day in office, President Biden issued a memorandum titled “Modernizing Regulatory Review,” directing the director of the Office of Management and Budget to produce a set of recommendations for how to improve regulatory review. 

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On Balance: Benefit-Cost Lessons Learned

An important lesson from the Trump days is how a robust cost-benefit analysis helps an agency both defend itself in court and guard against future rollbacks. But agencies must also ensure that they finalize any big policies in time to have the rules reviewed in court before the next transition, which means that there is no time to waste. These competing demands put huge pressures on agencies in a new administration. These lessons also highlight significant opportunities.

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On Balance: Measuring Social Welfare

Measuring Social Welfare: An Introduction (Oxford University Press 2019) is an overview of the “social welfare function” (SWF) framework for policy analysis. The book covers the underlying theory of SWFs in some detail, here drawing upon both welfare economics and the philosophical literature on well-being and distributive justice. Measuring Social Welfare also demonstrates how SWFs can be used as a practical policymaking tool. One chapter of the book offers a detailed study of the use of SWFs, as compared to benefit-cost analysis (BCA), with respect to fatality risk regulation. (Adler 2019, ch. 5)

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On Balance: Integrating Economics and Epidemiology in the COVID-19 Context (4 of 4)

One of the most popular sessions at the SBCA 2021 Annual Conference was on combining economics and epidemiology to understand COVID-19. Session speaker Ellie Murray shares a brief statement below. 

Public health responses to epidemics have been developed and refined over more than five centuries of experience. In recent decades, thirteen new zoonotic infections that affect humans, from Ebola in 1976 to Middle East Respiratory Syndrome in 2012, have emerged. Based on these experiences, the CDC Field Epidemiology Manual lays out a clear set of steps for outbreak investigation and response, including the importance of communicating clearly with the public. In countries and regions where time-tested public health tools based on these steps have been used, COVID is largely under control.

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On Balance: Integrating Economics and Epidemiology in the COVID-19 Context (3 of 4)

One of the most popular sessions at the SBCA 2021 Annual Conference was on combining economics and epidemiology to understand COVID-19. Session speaker Bill Bossert shares a brief statement below. 

Epidemic models often generate new terms or phrases to describe their behavior. Two of these, “herd immunity” and ”flattening the curve”, have been widely misunderstood and misused in the COVID epidemic by media, policy makers and even epidemiologists, who should know better. They have been held up as goals of public health management, but there is a deep down-side of each. Achieving herd immunity is just reducing the number of susceptible hosts for the pathogen to the point that the chance of an infected individual contacting a susceptible to transmit the pathogen isN too small to support the persistence of the disease. This is achieved at the cost of terrible human suffering or by vaccination that is measurably costly and it is difficult to achieve adequately high vaccination rates. Flattening the curve just trades acute pain for chronic pain. Reducing peak suffering and health care cost is replaced by an extended period for each, with only very small reduction in summed morbidity and cost. It can allow more time for the evolution of new strains that might be less sensitive to established therapies or vaccines.

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On Balance: Integrating Economics and Epidemiology in the COVID-19 Context (2 of 4)

One of the most popular sessions at the SBCA 2021 Annual Conference was on combining economics and epidemiology to understand COVID-19. Session speaker Natalie Dean shares a brief statement below.

Past studies of Ebola, HIV, dengue, and Zika by infectious disease epidemiologists provide a road map for the use of outbreak and contact tracing data to estimate transmission parameters for application in mathematical models. There are several primary goals for modeling efforts in this context.

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On Balance: Integrating Economics and Epidemiology in the COVID-19 Context (1 of 4)

One of the most popular sessions at the SBCA 2021 Annual Conference was on combining economics and epidemiology to understand COVID-19. Session speaker Chris Avery shares a brief statement below.

Thomas Schelling suggested in his book Micromotives and Macrobehavior that cost-benefit choices by individuals can explain the emergence of population-level phenomena in a game theory model. We can apply Schelling’s binary choice framework to social distancing.

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On Balance: Extending the Domain of the Value of a Statistical Life

The value of a statistical life (VSL) serves as the linchpin in the evaluation of prospective risk and environmental regulations. The estimated rate of tradeoff between fatality risks and money provides the basis for government agencies to monetize mortality risk reductions. For several decades, the VSL has been solidly entrenched in the benefit components of regulatory impact analyses. Recently, U.S. government agencies have used VSL estimates between $9 million and $11 million to estimate the prospective benefits for each expected death that is prevented by government regulations. The VSL sets the efficient price for small changes in risk, which is an efficiency reference point that has general applicability.

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On Balance: Prospects for Regulatory Analysis in the Biden Administration

President Biden's regulatory-reform calls for an updating of OMB Circular A-4, the obscure technical guidance that governs how regulatory agencies perform benefit-cost analysis (BCA) and how OMB reviews agency analyses.  Here are some issues ripe for reconsideration, as A-4 has not been updated since 2003.

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On Balance: Averting Expenditures and Willingness to Pay for Electricity Supply Reliability

The objective of the electricity transmission project is to increase domestic electricity consumption by improving the availability and reliability of electricity in Nepal’s electricity grid. This investment is to be financed through a grant from the US government via the Compact between the Millennium Challenge Corporation (MCC) and the Government of Nepal at a proposed cost of US$ 530 million. In addition, the Nepal Electricity Authority (NEA) is in the process of undertaking a number of generation projects with a total cost of approximately US$ 350 million, facilitated by funding of US$ 150 million from the Asian Development Bank and several bilateral development assistance organizations. Hence, the total investment program for system improvement is approximately US$ 880 million.

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On Balance: Systems Analysis, Cost-Effectiveness Analysis, Benefit-Cost Analysis, and Government Decisions

Rob Moore invited me to share further reflections on BCA in practice, lessons from 50 years ago but still relevant today.

 

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On Balance: Value of Improved Information about Environmental Protection Values: Toward a Benefit–Cost Analysis of Public-Good Valuation Studies

Environmental valuation has over the last 40 years grown into a major field within environmental and resource economics. Sizable resources are every year put into environmental valuation work, and an entire industry of analysts is devoted to it. There is however little discussion of benefits versus costs of these studies. A small part of them are innovative and part of fundamental research, and should clearly be funded, and published. But by far most valuation studies are much more practical and aim to assess particular goods or policies with less general interest to the broader public. Their usefulness should therefore be scrutinized.

 

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On Balance: Community-Led Total Sanitation: Incorporating Results from Recent Evaluations

The evidence access to safe sanitation services is essential for reducing child mortality and improving public health is overwhelming (Mara et al. 2010 & Prüss-Ustün et al. 2019). The international public health and medical communities have reached a consensus that access to sanitation services is a priority. Readers of the British Medical Journal voted the “sanitary revolution” as the most significant medical achievement since 1840 (Ferriman 2007). The United Nations’ Millennium Development Goals and Sustainable Development Goals both include explicit targets for increasing access to sanitation services. Despite overwhelming support for promoting sanitation in low-income countries, however, the problem remains large as an estimated 4.2 billion people worldwide are using inadequate sanitation facilities and almost 700 million have no access to any sanitation (UNICEF and WHO 2020). 

 

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On Balance: How Irrationality Affects the Value of Cash Transfers

Financial transfers from taxpayers to program recipients (such as Temporary Assistance to Needy Families, or TANF, in the US), are treated as having no effect on net benefits in benefit cost analysis, because, in dollar terms, the benefit they generate for recipients is exactly offset by the cost to taxpayers.  But if poverty has the effect of reducing the rationality of recipients relative to taxpayers, and if getting out of poverty increases it, then transfers may actually generate a non-zero net benefit, which could be positive or negative. 

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