Cost Benefit Analysis: Concepts and Practice

by Boardman, Anthony; Greenberg, David; Vining, Aidan; Weimer, David

• ISBN13: 9780131435834
• ISBN10: 0131435833
• Edition: 3rd
• Format: Paperback
• Copyright: 2006-01-01
• Publisher: Prentice Hall

Summary

For courses in Cost-Benefit Analysis, taught in Economics Departments, Public Policy Departments, and Public Administration Departments. Also ideal forpracticing policy analysts andpublic managers.This authoritative, market leading book is distinct for it's consistent application of a nine-step framework for conducting or interpreting a cost-benefit analysis.

Table of Contents

Preface	xiii
PART I: OVERVIEW	1	(50)
Introduction to Cost-Benefit Analysis	1	(25)
Individual Versus Social Costs and Benefits	1	(1)
The Purpose and Uses of CBA	2	(3)
The Demand for CBA	5	(1)
The Cost of CBA	6	(1)
Readers of This Book	6	(1)
The Basic Steps of CBA: Coquihalla Highway Example	7	(11)
Bureaucratic and Political ``Lenses''	18	(8)
Conceptual Foundations of Cost-Benefit Analysis	26	(25)
CBA as a Framework for Measuring Efficiency	26	(4)
Using CBA for Decision Making	30	(3)
Fundamental Issues Related to Willingness-to-Pay	33	(6)
Concerns About the Role of CBA in the Political Process	39	(2)
Limitations of CBA: Other Analytical Approaches	41	(10)
PART II: FUNDAMENTALS OF CBA	51	(228)
Basic Microeconomic Foundations of Cost-Benefit Analysis	51	(22)
Demand Schedules	51	(5)
Supply Schedules	56	(3)
Social Surplus and Allocative Efficiency	59	(3)
Alternative Ways to Calculate Net Social Benefits	62	(2)
Appendix 3A: Consumer Surplus and Willingness-to-Pay	64	(9)
Valuing Benefits and Costs in Primary Markets	73	(39)
Practical Versus Conceptually Correct Measures of Benefits and Costs	74	(2)
Valuing Outcomes: Willingness-to-Pay	76	(17)
Valuing Inputs: Opportunity Costs	93	(10)
Project Effects on Government Revenues and Taxes	103	(9)
Valuing Benefits and Costs in Secondary Markets	112	(19)
Valuing Benefits and Costs in Efficient Secondary Markets	112	(8)
Valuing Benefits and Costs in Distorted Secondary Markets	120	(3)
Indirect Effects of Infrastructure Projects	123	(1)
Secondary Market Effects from the Perspective of Local Communities	124	(7)
Discounting Benefits and Costs in Future Time Periods	131	(34)
The Basics of Discounting	131	(3)
Compounding and Discounting Over Multiple Years	134	(6)
Timing of Benefits and Costs	140	(1)
Long-Lived Projects and Horizon Values	141	(4)
Comparing Projects with Different Time Frames	145	(1)
Inflation and Real Versus Nominal Dollars	146	(6)
Relative Price Changes	152	(1)
Sensitivity Analysis in Discounting	153	(3)
Appendix 6A: Shortcut Methods for Calculating the Present Value of Annuities and Perpetuities	156	(9)
Dealing with Uncertainty: Expected Values, Sensitivity Analysis, and the Value of Information	165	(35)
Expected Value Analysis	165	(10)
Sensitivity Analysis	175	(9)
Information and Quasi-Option Value	184	(10)
Appendix 7A: Doing Monte Carlo Sensitivity Analysis with a Simple Spreadsheet	194	(6)
Option Price and Option Value	200	(22)
Ex Ante Willingness-to-Pay: Option Price	201	(10)
Determining the Bias in Expected Surplus: Signing Option Value	211	(2)
Rationales for Expected Surplus as a Practical Benefit Measure	213	(4)
Appendix 8A: Signing Option Value	217	(5)
Existence Value	222	(14)
Active and Passive Use Value	222	(4)
The Measurement of Existence Value	226	(4)
Appendix 9A: Expenditure Functions and the Partitioning of Benefits	230	(6)
The Social Discount Rate	236	(43)
Does the Choice of Discount Rate Matter?	238	(1)
The Theory Behind the Appropriate Social Discount Rate	239	(8)
Deriving the Social Discount Rate from the Market: Four Alternatives	247	(6)
The Shadow Price of Capital	253	(5)
Using the Optimal Growth Rate Approach to Discounting	258	(3)
Intergenerational Discounting	261	(3)
Recommended Social Discount Rates	264	(4)
The Social Discount Rate in Actual Practice	268	(11)
PART III: VALUATION OF IMPACTS	279	(184)
Valuing Impacts from Observed Behavior: Demonstrations	279	(35)
Why Conduct Demonstration Projects?	280	(1)
Alternative Evaluation Designs	281	(4)
CBAs of Demonstration Projects	285	(1)
CBAs of Employment and Training Demonstrations: An Introduction	286	(1)
The CBA Framework in the Education and Training Context	287	(2)
Conceptual Issues in Conducting CBAs of Education and Training Demonstrations	289	(11)
Choosing Prediction Parameters	300	(2)
A Case Study: CBAs of Work/Welfare Demonstrations	302	(12)
Valuing Impacts from Observed Behavior: Direct Estimation of Demand Curves	314	(23)
Project Revenues as the Measure of (Gross) Consumer Benefits	315	(1)
Estimation Knowing One Point on the Demand Curve and Its Slope or Elasticity	315	(7)
Extrapolating from a Few Observations	322	(1)
Econometric Estimation with Many Observations	323	(7)
Appendix 12A: An Introduction to Multiple Regression Analysis	330	(7)
Valuing Impacts from Observed Behavior: Indirect Market Methods	337	(32)
Market Analogy Method	338	(2)
The Trade-Off Method	340	(6)
Intermediate Good Method	346	(1)
Asset Valuation Method	346	(2)
Problems with Simple Valuation Methods	348	(1)
Hedonic Pricing Method	349	(5)
Travel Cost Method	354	(7)
Defensive Expenditures Method	361	(8)
Contingent Valuation: Using Surveys to Elicit Information About Costs and Benefits	369	(34)
Overview of Contingent Valuation Methods	370	(4)
Payment Vehicle	374	(1)
Generic Survey Issues	374	(5)
Contingent Valuation Problems and Issues	379	(12)
How Accurate Is Contingent Valuation?	391	(2)
Heuristics for the Design and Use of CV Surveys	393	(10)
Shadow Prices from Secondary Sources	403	(38)
The Value of a Statistical Life	405	(3)
The Value of a Life-Year	408	(1)
The Cost of Crashes and the Cost of Injuries	409	(4)
The Cost of Crime	413	(2)
The Value of Time	415	(2)
The Value of Recreation	417	(2)
The Value of Nature (Specific Species or Habitats)	419	(1)
The Value of Water and Water Quality	419	(4)
The Cost of Noise	423	(2)
The Cost of Air Pollution	425	(3)
The Cost of Taxation: Marginal Excess Tax Burden	428	(1)
Transferring and Adjusting Plug-In Values	429	(12)
Shadow Prices: Applications to Developing Countries	441	(22)
The LMST Methodology	442	(1)
Illustrations of the LMST Method in Practice	443	(6)
Shadow Pricing When Goods Are in Fixed Supply	449	(1)
The Shadow Price of Labor	450	(5)
Additional Topics	455	(4)
Is the LMST Method Actually Used for Project Evaluation?	459	(4)
PART IV: RELATED METHODS AND ACCURACY	463	(60)
Cost-Effectiveness Analysis	463	(25)
Cost-Effectiveness Ratios and Policy Choice	464	(9)
Omitted Costs and Benefits	473	(1)
Cost-Utility Analysis	474	(8)
The Use of League Tables	482	(6)
Distributionally Weighted Cost-Benefit Analysis	488	(19)
Distributional Justifications for Income Transfer Programs	490	(2)
The Case for Treating Low- and High-Income Groups Differently in CBA	492	(2)
Distributional Weights	494	(1)
Determining Distributional Weights	495	(2)
Politically Determined Weights	497	(1)
A Pragmatic Approach to Weighting	498	(9)
How Accurate Is CBA?	507	(16)
Sources of Errors in CBA Studies	508	(3)
The Distribution of Net Benefits Over Time	511	(1)
Summary of the CBAs of the Coquihalla Highway	512	(2)
Analysis of the Differences Among the CBAs	514	(5)
Conclusions Arising from the Comparisons	519	(4)
Bibliography	523	(22)
Name Index	545	(5)
Subject Index	550