Policy Evaluation Tools

Question 1

2 types of economic externalities

Answer 1

Positive- vaccine

Negative- car emissions

Question 2

What is MPC

Answer 2

Marginal private cost
Cost of skirt producing 1 extra unit

Question 3

What’s MPB

Answer 3

Marginal private benefit
Benefit buyer gets from buying 1 extra unit

Question 4

What’s MSB

Answer 4

Marginal social benefit
Extra societal benefit from positive externalities

Question 5

What’s MSC

Answer 5

Marginal social cost
Extra societal cost from negative externalities

Question 6

Policy approaches in 3 frames

Answer 6

Price based
Regulations
Behavioural

Question 7

Price base / taxation

Answer 7

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

Question 8

In price based what needs to be considered

Answer 8

Regressive taxation
Elasticity but anyway
Businesses may absorb costs

Question 9

Grants

Answer 9

Retrofitting may be onerous

Question 10

Behavioural based

Answer 10

Nudging to incite positive action
Information provision
Opt out options
Social norms electricity consumption v peers

Question 11

Regulation based

Answer 11

EU caps
Licences
Regulations on common pools ie fisheries
Must be enforced

Question 12

Decision principle of any policy 4 es

Answer 12

Economy
Efficiency
Effectiveness
Equity

Question 13

Main technique for appraisal

Answer 13

Cost benefit analysis

Question 14

Stages of CBA

Answer 14

Identify objectives
Consider options
Quantify costs benefits
Identify risk of each option
Decide on preferred option

Question 15

3 types of costs

Answer 15

1- fixed - no change ie rent
2- variable- change price of post van
3- semi variable combination maintenance costs

Question 16

Costs to be included in CBA

Answer 16

Contingency
Opportunity costs market value
shadow prices when market costs not suitable carbon

Question 17

Exclusion costs in CBA

Answer 17

Sunk costs / occur before appraisal

Question 18

How to quantify benefits

Answer 18

WTP
PSC guidance
Stated preference - contingent valuation
And revealed preference ie hedonic pricing and travel costs

Question 19

What’s hedonic pricing

Answer 19

Compare price of traded good based on similar good
House near park

Question 20

What’s stated preference

Answer 20

Contingent valuation
What people think of value WTP

Question 21

Human life in CBA

Answer 21

Foregone earnings
WTP and
WTA

Question 22

What are residual values

Answer 22

Resources that can be used after project ends

Question 23

Discounting

Answer 23

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

Question 24

How to assess risk

Answer 24

Sensitivity analysis- look at NPV in different scenarios
Scenario analysis- look at best and worst case

Question 25

Limitations of CBA

Answer 25

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

Question 26

how to account for green house gases

Answer 26

Establish counter factual- what happens if not implemented I use one metric Monetise changes. discounting monetary values of changes

Question 27

Shadow price carbon

Answer 27

Social cost - monetary estimate of future environmental damage Marginal abatement cost - cost of removing damage of 1 tonne

Question 28

Matland theory of ambiguity conflict model of policy implementation in different settings

Answer 28

Administrative- low ambiguity and low conflict Political- low ambiguity high conflict Experimental- high ambiguity low conflict Symbolic- high ambiguity high conflict