Cost benefit analysis

Cost-Benefit Analysis is used to assess whether a public policy or a public project is globally beneficial or detrimental to society. The approach is typically implemented to public decisions in the fields of transportation infrastructures, environment and natural resources, health and education. It estimates and totals up the equivalent money value of the benefits and costs to the community of projects to establish whether they are worthwhile. The method not only compare the financial flows (investments and operating costs) but also the economic effects (variation in consumption of public services, change in the satisfaction derived from them).

Content

Part 1 : Microeconomic foundations of CBA

  1. Rationale for cost benefit analysis

  2. Citizen preferences and public goods

  3. Consumer surplus and willingness to pay

  4. Optimal provision of public goods

Part 2 : Financial appraisal

  1. Methodology of financial appraisal

  2. Sustainability analysis

  3. Profitability analysis

  4. Sensitivity analysis

Part 3 : Economic appraisal

  1. Discount of benefits and costs

  2. Accounting for market distortions

  3. Sensitivity analysis

Part 4 : Estimation of welfare changes

  1. Methods at a glance

  2. Contingent valuation

  3. Discrete choice experiment

  4. Hedonic pricing

  5. Travel cost method

Bibliography

  • Chapitre 6, 7 & 9, ‘STATISTICAL TOOLS FOR PROGRAM EVALUATION: Methods and Applications to Economic Policy, Public Health, and Education’ by Josselin and Le Maux, Springer.

  • European Commission (2014). Guide to cost-benefit analysis of investment projects. Economic appraisal tool for cohesion policy 2014-2020.

Examination

A 10 min presentation (5-10 slides, group of 2-3 students) of a CBA study.

  1. Context: What is the project, the topic, the current state of knowledge on the subject?

  2. Data: what are the costs and benefits? Discount rate?

  3. Methods: How are the costs and benefits computed?

  4. Results: What is the conclusion? Sensitivity analysis?

  5. Your comments: What are the authors missing?