Policy Evaluation Tools Flashcards
2 types of economic externalities
Positive- vaccine
Negative- car emissions
What is MPC
Marginal private cost
Cost of skirt producing 1 extra unit
What’s MPB
Marginal private benefit
Benefit buyer gets from buying 1 extra unit
What’s MSB
Marginal social benefit
Extra societal benefit from positive externalities
What’s MSC
Marginal social cost
Extra societal cost from negative externalities
Policy approaches in 3 frames
Price based
Regulations
Behavioural
Price base / taxation
Account for negative externality by reflecting true price of good
Secure funding to tackle it
Lower demand by raising price eg fags
Encourage innovation for new goods
In price based what needs to be considered
Regressive taxation
Elasticity but anyway
Businesses may absorb costs
Grants
Retrofitting may be onerous
Behavioural based
Nudging to incite positive action
Information provision
Opt out options
Social norms electricity consumption v peers
Regulation based
EU caps
Licences
Regulations on common pools ie fisheries
Must be enforced
Decision principle of any policy 4 es
Economy
Efficiency
Effectiveness
Equity
Main technique for appraisal
Cost benefit analysis
Stages of CBA
Identify objectives
Consider options
Quantify costs benefits
Identify risk of each option
Decide on preferred option
3 types of costs
1- fixed - no change ie rent
2- variable- change price of post van
3- semi variable combination maintenance costs
Costs to be included in CBA
Contingency
Opportunity costs market value
shadow prices when market costs not suitable carbon
Exclusion costs in CBA
Sunk costs / occur before appraisal
How to quantify benefits
WTP
PSC guidance
Stated preference - contingent valuation
And revealed preference ie hedonic pricing and travel costs
What’s hedonic pricing
Compare price of traded good based on similar good
House near park
What’s stated preference
Contingent valuation
What people think of value WTP
Human life in CBA
Foregone earnings
WTP and
WTA
What are residual values
Resources that can be used after project ends
Discounting
Related to time value of money
Costs and benefits decrease over time
Formula discount factor = 1 divided by 1 plus discount rate 4% squared by years ahead
How to assess risk
Sensitivity analysis- look at NPV in different scenarios
Scenario analysis- look at best and worst case
Limitations of CBA
Difficulty measuring intangible benefits
D m certain costs
Human life and rights
Relies on quantitative not qualitative research
How costs/benefits are reported v how felt
Multiple objectives
Optimism bias
Certain objectives beneficial excluded from
CBA
how to account for green house gases
Establish counter factual- what happens if not implemented
I use one metric
Monetise changes.
discounting monetary values of changes
Shadow price carbon
Social cost - monetary estimate of future environmental damage
Marginal abatement cost - cost of removing damage of 1 tonne
Matland theory of ambiguity conflict model of policy implementation in different settings
Administrative- low ambiguity and low conflict
Political- low ambiguity high conflict
Experimental- high ambiguity low conflict
Symbolic- high ambiguity high conflict
