Lecture 2 Flashcards
Why do we still need a CBA?
Even when markets are good allocating scarce resources, there can be market failures. That’s the main reason of why we still need to conduct a CBA
What are the steps of a CBA?
- Specify the set of alternative projects (to ensure the best option is selected)
- Decide whose benefits and costs count (related to spatial level of the analysis: local, regional, national)
- Catalog the impacts and select the measurement indicators (reduce travel time, accidents avoided - in case of a transportation project)
- Predict impacts
- Monetize all impacts
- Calculate present value
- Calculate net present value for each alternative
- Perform sensitive analysis
- Make a recommendation
What is a CBA?
It is a method used by economists and policy makers to evaluate the pros and cons of different projects, policies and investments
Characteristis of the markets?
Markets are very good allocation scarce resources. However, there can be market failure.
What is a market failure?
When the allocation of goods and services by a free market is inefficient, leading to an outcome that is not optimal for society as a whole
What is a public good?
Goods that are non-excludable and non-rivalrous, meaning that once they are provided, everyone can benefit from them and one person’s consumption does not diminish the amount available for others
What is non-excludable?
This means that is difficult or imposible to prevent people from using the good once it is provided.
Example: public park
What is non-rivalrous?
This means that one person’s consumption of the good does not reduce the amount available for others to consume.
Example: listen to a public radio broadcast/enjoy the view of fireworks
What is a free-rider position?
A person who receives the benefit for a good but avoids paying for it or contributing to its provision.
