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Cost-Benefit Analysis: Concepts and Practice, Third Edition

by Anthony E. Boardman - University of British Columbia; David H. Greenberg - University of Maryland Baltimore County; Aidan R. Vining - Simon Fraser University; David L. Weimer - University of Wisconsin–Madison

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Copyright, ii
Preface, xiii
I. Overview, 1
1. Introduction to Cost-Benefit Analysis, 1
Individual Versus Social Costs and Benefits, 1
The Purpose and Uses of CBA, 2
The Demand for CBA, 5
The Cost of CBA, 6
Readers of this Book, 6
The Basic Steps of CBA: Coquihalla Highway Example, 7
Bureaucratic and Political “Lenses”[30], 18
Conclusion, 22
Exercises for Chapter 1, 22
Notes, 23
2. Conceptual Foundations of Cost-Benefit Analysis, 26
CBA as a Framework for Measuring Efficiency, 26
Using CBA for Decision Making, 30
Fundamental Issues Related to Willingness-to-Pay, 33
Concerns About the Role of CBA in the Political Process, 39
Limitations of CBA: Other Analytical Approaches, 41
Conclusion, 46
Exercises for Chapter 2, 47
Notes, 48
II. Fundamentals of CBA, 51
3. Basic Microeconomic Foundations of Cost-Benefit Analysis, 51
Demand Schedules, 51
Supply Schedules, 56
Social Surplus and Allocative Efficiency[11], 59
Alternative Ways to Calculate Net Social Benefits, 62
Conclusions, 63
Appendix 3A: Consumer Surplus and Willingness-to-Pay, 64
Exercises for Chapter 3, 69
Notes, 70
Appendix Notes, 71
4. Valuing Benefits and Costs in Primary Markets, 73
Practical Versus Conceptually Correct Measures of Benefits and Costs, 74
Valuing Outcomes: Willingness-to-Pay, 76
Valuing Inputs: Opportunity Costs, 93
Project Effects on Government Revenues and Taxes, 103
Conclusions, 106
Exercises for Chapter 4, 106
Notes, 108
5. Valuing Benefits and Costs in Secondary Markets, 112
Valuing Benefits and Costs in Efficient Secondary Markets, 112
Valuing Benefits and Costs in Distorted Secondary Markets, 120
Indirect Effects of Infrastructure Projects, 123
Secondary Market Effects from the Perspective of Local Communities, 124
Conclusion, 125
Exercises for Chapter 5, 128
Notes, 130
6. Discounting Benefits and Costs in Future Time Periods, 131
The Basics of Discounting, 131
Compounding and Discounting Over Multiple Years, 134
Timing of Benefits and Costs, 140
Long-Lived Projects and Horizon Values, 141
Comparing Projects with Different Time Frames, 145
Inflation and Real Versus Nominal Dollars, 146
Relative Price Changes, 152
Sensitivity Analysis in Discounting, 153
Conclusion, 155
Appendix 6A: Shortcut Methods for Calculating the Present Value of Annuities and Perpetuities, 156
Exercises for Chapter 6, 159
Notes, 160
Appendix Notes, 164
7. Dealing with Uncertainty: Expected Values, Sensitivity Analysis, and the Value of Information, 165
Expected Value Analysis, 165
Sensitivity Analysis, 175
Information and Quasi-Option Value, 184
Conclusion, 193
Appendix 7A: Doing Monte Carlo Sensitivity Analysis with a Simple Spreadsheet, 194
Exercises for Chapter 7, 195
Notes, 197
8. Option Price and Option Value, 200
Ex Ante Willingness-to-Pay: Option Price[1], 201
Determining the Bias in Expected Surplus: Signing Option Value, 211
Rationales for Expected Surplus as a Practical Benefit Measure, 213
Conclusion, 215
Appendix 8A: Signing Option Value, 217
Exercises for Chapter 8, 218
Notes, 219
9. Existence Value, 222
Active and Passive Use Value, 222
The Measurement of Existence Value, 226
Conclusion, 229
Appendix 9A: Expenditure Functions and the Partitioning of Benefits, 230
Exercises for Chapter 9, 233
Notes, 233
Appendix Notes, 234
10. The Social Discount Rate[1], 236
Does the Choice of Discount Rate Matter?, 238
The Theory Behind the Appropriate Social Discount Rate, 239
Deriving the Social Discount Rate from the Market: Four Alternatives, 247
The Shadow Price of Capital, 253
Using the Optimal Growth Rate Approach to Discounting, 258
Intergenerational Discounting, 261
Recommended Social Discount Rates, 264
The Social Discount Rate in Actual Practice, 268
Conclusion, 269
Exercises for Chapter 10, 270
Notes, 271
III. Valuation of Impacts, 279
11. Valuing Impacts From Observed Behavior: Demonstrations, 279
Why Conduct Demonstration Projects?, 280
Alternative Evaluation Designs, 281
CBAs of Demonstration Projects, 285
CBAs of Employment and Training Demonstrations: An Introduction, 286
The CBA Framework in the Education and Training Context, 287
Conceptual Issues in Conducting CBAs of Education and Training Demonstrations, 289
Choosing Prediction Parameters, 300
A Case Study: CBAs of Work/Welfare Demonstrations, 302
Conclusion, 308
Exercises for Chapter 11, 308
Notes, 310
12. Valuing Impacts from Observed Behavior: Direct Estimation of Demand Curves, 314
Project Revenues as the Measure of (Gross) Consumer Benefits, 315
Estimation Knowing One Point on the Demand Curve and its Slope or Elasticity, 315
Extrapolating from a Few Observations, 322
Econometric Estimation With Many Observations, 323
Conclusion, 329
Appendix 12A: An Introduction to Multiple Regression Analysis, 330
Exercises for Chapter 12, 333
Notes, 334
Appendix Notes, 335
13. Valuing Impacts From Observed Behavior: Indirect Market Methods, 337
Market Analogy Method, 338
The Trade-Off Method, 340
Intermediate Good Method, 345
Asset Valuation Method, 346
Problems with Simple Valuation Methods, 348
Hedonic Pricing Method, 349
Travel Cost Method[25], 354
Defensive Expenditures Method[34], 361
Conclusion, 364
Exercises for Chapter 13, 364
Notes, 365
14. Contingent Valuation: Using Surveys to Elicit Information About Costs and Benefits, 369
Overview of Contingent Valuation Methods, 370
Payment Vehicle, 374
Generic Survey Issues, 374
Contingent Valuation Problems and Issues, 379
How Accurate is Contingent Valuation?, 391
Heuristics for the Design and Use of CV Surveys, 393
Conclusion, 394
Exercises for Chapter 14, 394
Notes, 395
15. Shadow Prices from Secondary Sources, 403
The Value of a Statistical Life, 405
The Value of a Life-Year, 408
The Cost of Crashes and the Cost of Injuries, 409
The Cost of Crime, 413
The Value of Time, 415
The Value of Recreation, 417
The Value of Nature (Specific Species or Habitats), 419
The Value of Water and Water Quality, 420
The Cost of Noise, 423
The Cost of Air Pollution, 425
The Cost of Taxation: Marginal Excess Tax Burden, 428
Transferring and Adjusting Plug-in Values, 429
Conclusion, 432
Exercises for Chapter 15, 433
Notes, 433
16. Shadow Prices: Applications to Developing Countries[1], 441
The LMST Methodology, 442
Illustrations of the LMST Method in Practice, 443
Shadow Pricing When Goods are in Fixed Supply, 449
The Shadow Price of Labor, 450
Additional Topics, 455
Is the LMST Method Actually Used for Project Evaluation?, 459
Conclusion, 459
Exercises for Chapter 16, 459
Notes, 461
IV. Related Methods and Accuracy, 463
17. Cost-Effectiveness Analysis, 463
Cost-Effectiveness Ratios and Policy Choice, 464
Omitted Costs and Benefits, 473
Cost-Utility Analysis, 474
The Use of League Tables, 482
Conclusion: When is CEA Close to CBA?, 483
Exercises for Chapter 17, 483
Notes, 485
18. Distributionally Weighted Cost-Benefit Analysis, 488
Distributional Justifications for Income Transfer Programs, 490
The Case for Treating Low- and High-Income Groups Differently in CBA, 492
Distributional Weights, 494
Determining Distributional Weights, 495
Politically Determined Weights, 497
A Pragmatic Approach to Weighting, 498
Conclusion, 503
Exercises for Chapter 18, 503
Notes, 504
19. How Accurate is CBA?, 507
Sources of Errors in CBA Studies, 508
The Distribution of Net Benefits Over Time, 511
Summary of the CBAs of the Coquihalla Highway, 512
Analysis of the Differences Among the CBAs, 514
Conclusions Arising from the Comparisons, 519
Notes, 521
A Selected Cost-Benefit Analysis Bibliography, 523
2. Air Pollution, 524
3. Crime and Drug Abuse (Including Alcohol), 526
4. Culture, Sports, and Entertainment, 527
5. Education and Employment/Training Programs, 528
6. Energy and Energy Conservation, 529
7. Forestry, 530
8. Hazardous Waste (Including Nuclear Power and Waste), 530
9. Health and Health Regulation, 530
10. Industry Regulation (Not Professional or Safety), 533
11. Noise Pollution, 534
12. Parks, Lakes, Rivers, Open Space, and Other Recreation, 534
13. Professional Regulation, 535
14. Public Works (Nontransit), 536
15. R&D, 536
16. Recreational and Commercial Fisheries, 537
17. Redistribution Programs and Costs, 537
18. Transportation/Transit (Including Safety), 538
19. Waste Disposal, 540
20. Water, 541
21. Water Pollution, 541
22. Wilderness/Wetlands/Wildlife, 542
Name Index, I-1-1
Subject Index, I-2-1

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