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On Balance: From the SBCA President: Impressions of the 11th Annual Conference

The 2019 Annual Conference and Meeting of the Society for Benefit-Cost Analysis took place March 13-15 at George Washington University’s Marvin Center. The conference was attended by 329 friends of benefit-cost analysis, the largest number of attendees since the first conference in 2008. The attendees were treated to a cornucopia of benefits and costs, eminent speakers, and good conversation.

Forty-three conference sessions covered topics presented by researchers and practitioners from around the world, reflecting the global applications of benefit-cost analysis and the reach of the Society. Presentations tackled subjects as diverse as the Olympics, taxes, crime prevention, international environmental agreements, sanitation, prohibition, deregulation, drawbridges, nudges, and the statistical value of a dog life. Discussants’ perspectives, questions and comments from audiences, and spirited talk during breaks and evening receptions were often as enlightening as the presentations themselves. It all came together to create an ideal event for those who care about benefit-cost analysis.

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On Balance: Trump’s Deregulatory Record

In his campaign for the US presidency, candidate Donald Trump advocated widespread deregulation of the US economy. Upon taking office, President Trump quickly issued policies to fulfill his campaign promises. Midway through his term, it is fair to ask: Is deregulation being accomplished?

To answer this question, we recently completed a study of the Trump deregulatory record at the two-year mark (Belton and Graham 2019). We interviewed dozens of regulatory experts, reviewed the literature, searched regulatory databases, and conducted original analysis. We deliberately chose not to take a position on whether deregulation is in itself good or bad, but rather to focus on whether the Trump Administration has been effective in deregulation.

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On Balance: Books of Interest

The editorial staff have identified these books that are a bit off the beaten track of Benefit-Cost Analysis, but yet might have some interesting lessons.

 

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On Balance: How Expanding Health Insurance Coverage Reduces Financial Risks

When researchers and policy analysts consider the benefits of expanding health insurance coverage, they understandably focus first on the health benefits, such as reduced infant mortality, increased longevity, lower rates of illness, and improved quality of life. However, access to insurance also lowers financial risk exposure—i.e., it protects the household against major shocks to its financial well-being—by mitigating lost earning capacity and helping to cover out-of-pocket health care expenditures. This post describes a new article published in the JBCA, Valuing Protection against Health-Related Financial Risks  with co-authors Kalipso Chalkidou and Dean Jamison, which is part of an open access Special Issue, Conducting Benefit-Cost Analysis in Low- and Middle-Income Countries, edited by Lisa Robinson (Harvard T.H. Chan School of Public Health).

 

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On Balance: Social Welfare Effects of Smoking Bans in Bars and Restaurants

Since the 1964 Surgeon General’s report linking smoking cigarettes to adverse health outcomes, numerous federal, state, and local governments have passed regulations designed to reduce the prevalence of smoking and related externalities. Examples of such regulations include cigarette taxes, public health campaigns, minimum purchasing ages for tobacco, and – the focus of this post – smoking bans in bars and restaurants. While the links between smoking and health are clear, the effects of these bans on social welfare, which includes other types of risky behavior as well as smoking, are less well understood. This post describes work-in-progress to address some of the gaps. Preliminary results will be presented at the Annual Conference and Meeting of the Society for Benefit-Cost Analysis in March 2019.

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On Balance: Using Retrospective Analysis to Increase Policy Learning in Europe

A retrospective exercise is an opportunity to learn and improve. With this in mind, an international consortium led by CSIL (Centre for Industrial Studies) recently developed an evaluation framework to carry out a retrospective assessment of infrastructure projects in several environmental sectors. The framework was developed as part of a study being carried out on behalf of the European Commission (Directorate-General for Regional and Urban Policy) to look retrospectively at 10 of the major infrastructural projects co-financed by the Commission over the period 2000 to 2013. While it will come as no surprise that, in retrospect, forecasts are imperfect, learning from mistakes or unexpected outcomes may improve the quality of forecasts. In turn, better forecasts may lead to better policy-making. This post reports some preliminary results from the study; more complete results will be presented at the Society for Benefit-Cost Analysis Conference in March 2019.

 

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On Balance: Can Cost Benefit Analysis Tell Us If Our City Should Host the Olympics? It Does. But Could Do It Better.

There is growing skepticism among both academics and government officials about the benefits of large-scale sport and cultural events. Although Input-Output (IO) has long been the dominant approach to estimating the impacts of these events, the method faces criticism for both its lack of realism and the incompleteness of its results. Consequently, economists have begun to turn to two alternative approaches: computable general equilibrium (CGE) and cost-benefit analysis. These approaches can take into account effects not captured within an IO framework. They also often produce strikingly different results than those obtained using an IO model. This post reports some preliminary results from ongoing research evaluating nearly 60 studies that use cost-benefit methods to evaluate events. More complete results will be presented at the Society for Benefit-Cost Analysis Conference in March 2019.


An IO approach is fundamentally a multiplier approach, converting expenditures (on infrastructure, for example) into gross production in the host city. One limitation is that IO treats expenditures, such as those for infrastructure or by the local population, as fully additional; since this approach does not take account of substitution (i.e., that these resources have been diverted from other uses), it may overstate the favorable economic impact of an event. Another concern is IO’s focus only on gross domestic product and other related impacts, rather than on welfare, which also recognizes externalities and opportunity costs (Massiani 2018).

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On Balance: Review of The Cost-Benefit Revolution by Cass R. Sunstein

Fomenting revolution brings to mind crowds storming the barricades, not analysts struggling to debug a spreadsheet or craft a clear sentence. Yet in his book, The Cost-Benefit Revolution, Cass Sunstein (Robert Walmsley University Professor, Harvard Law School) argues that benefit-cost analysts are doing exactly that. The barricades we surmount are decision-making errors resulting from overreliance on intuition and emotion, our weapons are science and economics, and our achievements are better policies.

As a previous Administrator of the Office of Information and Regulatory Affairs in the U.S. Office of Management and Budget, which oversees the U.S. regulatory program, it is not surprising that Sunstein focuses on the use of benefit-cost analysis in the regulatory realm. However, his insights and conclusions are broadly applicable to wherever benefit-cost analysis is practiced.

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On Balance: Two quick fix solutions to baseline estimation challenges: good enough for practical analysis?

Since 2010, I have been a practitioner of practical benefit-cost analysis at Environment and Climate Change Canada (ECCC), working with colleagues to inform policymakers and stakeholders about the likely impacts of proposed federal environmental regulations. I would like to examine a key issue in developing estimates of the benefits and costs of these regulations: the development of the baseline in a benefit-cost analysis.

In recent years, a number of articles in the Journal of Benefit Cost Analysis have addressed the question of how best to conduct—and evaluate—a regulatory benefit-cost analysis. Two of these subsequently resulted in posts to On BalanceConsumers Guide to Regulatory Impact Analysis, by Susan Dudley, and Two Decades of Benefits and Costs: Promise and Pitfalls, by Clark Nardinelli. Another article by Richard Morganstern, Retrospective Analysis of U.S. Federal Environmental Regulation, examines various estimates for environmental rules and analyzes issues relevant to developing credible baselines.

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On Balance: What’s the Score? The Congressional Budget Office and its Role in the Policy Process

The Congressional Budget Office (CBO) plays an important role in the federal legislative process. CBO’s score on a given bill—that is, its estimate of how it would affect the federal budget deficit—can determine whether Congress decides to go forward with the bill, modify it to get a more favorable estimate, or simply drop it. Given their importance, debates over CBO’s scores and the methods they use to produce them can be as controversial as the bills that are being considered. While this controversy can be politically motivated (with advocates on either side of an issue arguing for a score that is more favorable to their position), it also stems from limited understanding of CBO’s intended role in the process—and reflects the difficulty of conducting analyses of benefits and costs in the context of policy decisions.

 

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On Balance: Using Cost-Benefit Analysis to Make the World a Better Place

If you had billions of dollars to make the world a better place, and could spend it however you wanted, how would you maximize your impact? This is not just a thought experiment, but a daily concern for the world’s governments, philanthropists, and multilateral institutions. Since 2004, Copenhagen Consensus has been using cost-benefit analysis to help decision makers identify highly effective interventions. While most cost-benefit analysis seeks the best solution for a single problem, Copenhagen Consensus takes a wider view, looking across all major domains for policies that improve social welfare.

 

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On Balance: Nudging Electricity Consumption

Nudges are all the rage in behavioral economics and public policy applications around the world because of their potential for doing good at little or no cost. Economists, including Kip Viscusi (2018), have begun examining previously unexplored sides of nudges including some involving energy consumption. An often employed nudge in the area of conserving energy and reducing pollution is the home energy report, where after a home energy survey a household receives a message, usually monthly, that compares its energy use to that of neighbors and suggests ways to reduce electric or gas use and, in turn, its carbon footprint. Each month the consuming unit can also see how its energy use compares to its own past usage too. The subtleties of the benefits of home energy surveys and home energy reports is the subject of a recent article, "Differential and Distributional Effects of Energy Efficiency Surveys: Evidence from Electricity Consumption," available open access at the Journal of Benefit-Cost Analysis.

 

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On Balance: Review of "Cost Benefit Analysis" by Per Olov Johansson and Bengt Kristrom

Cambridge Elements has created a series on Public Economics, edited by Robin Boadway, Frank Cowell and Massimo Florio. This is part of a major project by Cambridge University Press, which is intended to provide peer-reviewed analytical surveys and frontier topics in all the disciplines. We happily note that the first published “Element” in this series is Cost Benefit Analysis, by Per-Olov Johansson and Bengt Kriström (2018). Cost-Benefit Analysis is available as a free download for a limited time, and is for sale (relatively inexpensively) in print at Cambridge and at online booksellers, such as Barnes and Noble. The Element is just above eighty pages (plus a short technical annex and a long list of references).

Encompassing the whole of Cost-Benefit Analysis in such a reduced volume is a tour de force, as acknowledged by the authors in the prologue. The aim is to provide a comprehensive and non-technical state of the art overview of Cost-Benefit Analysis, including both basic classical results and some new frontiers. It has been successfully reached.

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On Balance: Executive Order 12866 and the Durability of Core Regulatory Principles

On September 24, 2018, experts gathered at the George Washington University (GW) to commemorate the 25th anniversary of Executive Order (E.O.) 12866Regulatory Planning and Review—and discuss the implications of its provisions and future prospects. The Society for Benefit-Cost Analysis (SBCA) cosponsored the event with the GW Regulatory Studies CenterABA Section of Administrative Law and Regulatory Practice, and the Trachtenberg School of Public Policy and Public Administration. (Additional information on the event, including commentaries by the speakers, and videos when they become available, are posted on the GW website.)

 

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On Balance: Two Decades of Benefits and Costs: Promise and Pitfalls

A new article in the Fall Issue of the Journal of Benefit-Cost Analysis (JBCA),  “Some Pitfalls of Practical Benefit-Cost Analysis,”  describes common pitfalls that well-meaning analysts fall into. Over the past 23 years I have worked on and supervised hundreds of benefit-cost analyses. Most of these analyses have dealt with public health regulations proposed by the Food and Drug Administration, although on occasion I have reviewed analyses from other government agencies and academia. I’ve seen these pitfalls occur many times and at one time or another I’ve been guilty of most of them.

 

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On Balance: Reflecting on the Longevity of Executive Order 12866 and Looking to the Future

September 2018 marks the 25th anniversary of Executive Order (EO) 12866, which requires U.S. federal agencies, “in deciding whether and how to regulate, [to] assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating.” It further states that, “in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach.”

Since it was signed on September 30, 1993, four different presidents with markedly diverse regulatory philosophies have relied on EO12866 to guide both the procedures and analytical practices for developing new regulations.

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On Balance: Reporting back: the World Congress for Environmental and Resource Economists in Gothenburg, Sweden

Gothenburg, Sweden hosted the 2018 World Congress for Environmental and Resource Economists, which met from June 25-29, 2018. The five-day conference was held at the School of Business, Economics, and Law, which is part of the University of Gothenburg. The conference was made possible by the joint effort of three major economics associations: the Association of Environmental and Resource Economists (AERE), the East Asian AERE (EAAERE), and the European AERE (EAERE).

 

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On Balance: Review of “Teaching Benefit-Cost Analysis” by Scott Farrow

As the feasibility of using benefit-cost analysis (BCA) as a practical tool of policy analysis has increased, so too has the need for materials to aid those of us who are called upon to teach BCA. Teaching Benefit-Cost Analysis: Tools of the Trade, edited by Scott Farrow (Professor of Economics, University of Maryland, Baltimore County), is a distinctive and welcome addition to the collection of such materials.

 

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On Balance: Retrospective Analyses Are Hard: A Cautionary Tale

Under the 1990 Clean Air Act Amendments, the U.S. Environmental Protection Agency (EPA) was required to establish standards limiting air toxics emissions from industrial plants. An article in the latest issue of the Journal of Benefit Cost Analysis  (JBCA)“Retrospective Analyses Are Hard: A Cautionary Tale from EPA's Air Toxics Regulations,” takes a retrospective look at 5 of the largest rules issued by EPA in the initial round of air toxics rulemaking over the period 1995 to 2000. For the rules examined, our estimates suggest mixed results, in terms of the reductions in emissions that were achieved. However, our efforts during the project also reinforce the difficulty of obtaining adequate plant emissions data, even where there is an established database--in this case, the Toxic Release Inventory (TRI).

 

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On Balance: Taking Benefit-Cost Analysis on the Road

One of the reasons I look forward each year to the annual conference of the Society for Benefit Cost Analysis is connecting with fellow economists who have chosen careers in my specialty, which has evolved to be regulatory policy and analysis. I enjoy sharing and hearing everyone’s war stories and appreciate the advice I receive from those who have “been there, done that” and hope that I add value when I offer the same to new economists working to influence the policy process.

 

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