CBA

Question 1

Examples of the first time CBA was used in the UK

Answer 1

1960s-70s CBA used in transportation (M1 Motorway, London Victoria Underground, Channel Tunnel, Third London airport)

Question 2

What did the 1990 Pearce report recommend

Answer 2

recommended that environmental impacts (costs and benefits) should be included and considered in formal policy and project appraisal where possible

Question 3

What were the outcomes of the Pearce Report

Answer 3

Report influenced several policies in the UK since 1990s, e.g. landfill tax, national air quality standards, agri-environmental policies
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Question 4

What is CBA

Answer 4

a formal instrument to support public decision making ie when a resources is scare, how can we make the best choice?

Question 5

What theory is CBA based in

Answer 5

welfare theory

Question 6

What do CBA’s include

Answer 6

any impact on utility whether or not it is reflected in market prices

Question 7

What does welfare economics evaluate

Answer 7

Welfare economics evaluates alternative resource allocations in terms of their effects on utility

Question 8

What is scarcity rent

Answer 8

It is the cost of “using up” a finite resource because benefits of the extracted resource are unavailable to future generations

Question 9

When is efficiency achieved in terms of scarcity rent?

Answer 9

Efficiency is achieved when the resource price–the benefit society is willing to pay for the resource today–is equal to the sum of marginal extraction cost and scarcity rent.

Question 10

What element is essential for CBA to work

Answer 10

alternatives

Question 11

Give examples of project alternatives

Answer 11

do nothing
do a bit
do something else

Question 12

How do private investors view CBA differently to public investors ?

Answer 12

For the private investor, the CBA is the business plan

For the public investor, costs and benefits are social welfare

Question 13

What is the aim for economic analysis?

Answer 13

Assess the effect of a project on the welfare of the affected population (local, regional, national, international)
it has a social perspective

Question 14

What are the differences between financial and economic analysis

Answer 14

F.A. is focused on variables surrounding price, market prices and hasa private perspective
E.A is focused on variables surrounding value, shadow prices and had a public perspective

Question 15

What is the equation for future value?

Answer 15

Present value x (1+ r)^t

Question 16

What is the equation for present value?

Answer 16

FV / (1 + r)^t

Question 17

What is the net present value

Answer 17

value, or net benefit of a project over time. It is a way to assess, for example, a long term investment in retrofitting the lighting in ENV

Question 18

Why is the discount factor a thing

Answer 18

People tend to value money they have in the present than money they could receive in the future

Question 19

strengths of CBA

Answer 19

Appraisal technique for economic efficiency in resource alloation
Identify all costs and benefits in a formalised way
Incorporates social values and prefenences in decision making
Integrates financial and environmental effects

Question 20

Weaknesses of CBA

Answer 20

Ethical framework: policy is welfare improving if we could compensate losers
Monetarily valuing nature, culture
Discounting nature
Does not adequately address cumulative & indirect effects, complexity, uncertainity
Time and resource intensive

Question 21

What is the green books discounting rate

Answer 21

3.5%

Question 22

What does a lower discount factor favour

Answer 22

favours investments in future generation

Question 23

How do we value environmental c and b

Answer 23

Revealed preference methods
Stated preference methods
Replacement cost
Avoided cost, etc

Question 24

How should cba be appraised in relation to inflation

Answer 24

Costs and benefits should be appraised with the effects of general inflation removed