Deck 01

Question 1

Define Cost-Benefit Analysis

Answer 1

1. An analysis in wh/ both the cost and benefits are measured in dollars.
2. useful in determining which program or intervention has the greatest benefit.
3. It is a useful method for comparing multiple programs with varying outcomes.

Question 2

Describe Cost-Benefit

Answer 2

It values indirect benefits using the human capital (HC) and intangible befits using the WTP approach

Question 3

When do you use Cost-Benefit Analysis?

Answer 3

1. Welfare economics
2. Used to help make decisions regarding public policy by incorporating individual preferences and values to improve social welfare while balancing the effective use of resources.
3. Setting environmental policy.
4. Public goods such as wildlife, air quality, public parks, and health care.

Question 4

HC estimates?

Answer 4

Wage and productivity losses because of illness and disability or death

Question 5

What are the 2 components of calculating HC?

Answer 5

i) Wage rate

ii) Missed time (days or years) because of illness

Question 6

Explain WTP

Answer 6

1. Method can value both the indirect and intangible aspects of a disease or condition.
2. Method determines how much people are willing to pay to reduce the chances of an adverse health outcome.
3. Method is grounded in welfare economic theory, and it incorporates patient preferences and intangible benefits such as quality of life differences.

Question 7

Advantages of WTP

Answer 7

1. A method to place a dollar value on intangible benefits.

2. It is also grounded in the welfare economic theory, which embodies patient preferences and choice.

Question 8

Disadvantages of WTP

Answer 8

1. It is difficult for people to place a dollar value on a health benefit or an increase in health-related quality of life or satisfaction.

Question 9

What are the 3 methods used to calculate CBA?

Answer 9

1. Net benefit (or Net Cost) calculations
2. Benefit-to-Costs ratios.
3. Internal Rate of Return.

Question 10

Net benefit =

Answer 10

Total benefits - total cost

Question 11

Net cost =

Answer 11

Total cost - total benefits

Question 12

In Net benefit or Net Cost, interventions would be considered to be cost-beneficial if

Answer 12

i) Net Benefit > 0 or ii) Net Cost < 0

Question 13

benefit-to-cost ratio

Answer 13

(Sum of the total benefits) / (Total cost)

Question 14

Cost-to-benefit ratio

Answer 14

(Total cost) / (Sum of the total benefits)

Question 15

What is IRR?

Answer 15

1. It is the rate of return that equates to the present value (PV)
2. The goal is to find the rate of return that would make the costs and benefits equal.

Question 16

present value (pv) of future benefits and costs

Answer 16

future benefits and costs must be included, future values are worth less than values today, focus on present value of expected net benefits

Question 17

present value

Answer 17

benefits that accrue later are discounted to today’s value- worth more in the future

Question 18

Types of discount rates for government projects

Answer 18

social rate of discount

Question 19

social rate of discount

Answer 19

valuation society would place consumption that is sacrificed, accounts for concern about future generations, 2-3% real return

Question 20

Value of a Statistical Life (VSL)

Answer 20

how much we are willing to spend to save a life

Question 21

valuing public benefits and costs

Answer 21

• compared to what?
• what counts?
• who has standing?
• what can be counted?
• how much?
• how long?

Question 22

basic steps of CBA

Answer 22

1. specify options or alternatives
2. decide what benefits and costs count
3. decide who to consider
4. determine what you can measure
5. Monetize all impacts
6. discount benefits and cost to obtain present values
7. Find net present value of each alternative
8. Sensitivity analysis
9. make a recommendation

Question 23

What is 1 step of CBA

Answer 23

Specify the set of alternative projects

Question 24

What is step 2 of CBA

Answer 24

1. Decide whose benefits and costs count (standing)

2. E.g. Fyn, Denmark or World

Question 25

What is step 3 of CBA

Answer 25

1. Identify the impact categories, catalogue them, and select measurement indicators
2. E.g. Accidents avoided, saving time

Question 26

What is step 4 of CBA

Answer 26

a. Predict the impacts quantitatively over the life of the project
b. E.g. traffic, time saved, lives saved over the project life

Question 27

What is step 5 of CBA

Answer 27

a. Predict the impacts quantitatively over the life of the project.
b. E.g. traffic, time saved, lives saved over the project life

Question 28

What is step 6 of CBA

Answer 28

1. Discount benefits and costs to obtain present value.

2. Projects has impact that occur over years. We need to aggregate the benefits and costs that arise

Question 29

What is step 7 of CBA

Answer 29

a. Compute the net present value of each alternative

b. NPV=PV(benefits)-PV(costs). When there are several alternative projects, choose the one with the highest NPV.

Question 30

What is step 8 of CBA

Answer 30

a. Perform sensitivity analysis

b. There is an uncertainty of the predicted impacts and monetization

Question 31

What is step 9 of CBA

Answer 31

a. Make a recommendation
b. Choose the project with highest NPV but be aware of the sensitivity analysis as the project with highest NPV is not always the best decision.

Question 32

What does ex-ante mean?

Answer 32

we look at future events based on possible predictions

Question 33

What does ex-post mean?

Answer 33

we look at results and events after they have occurred.

Question 34

What does midway mean?

Answer 34

We reevaluate if the parts or abandon the project

Question 35

Denote the utility of an individual

Answer 35

u_i=u_i (x_i, P)

x_i, denotes individual I’s consumption (or income), P=1 means project is adopted

Question 36

Denote the utility of an individual’s willingness to pay based pm the quantity

Answer 36

u_i (x_i−∆_i,1)=u_i (x_i,0)

x_i=individual consumption,