Kindle Notes & Highlights
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November 1, 2020 - February 19, 2021
Who is defining the problem? And for whom?
The analyst should arrive at the problem statement fully aware of the biases and assumptions that inform it. To acquire this awareness, the issue at hand first needs to be understood within its historical, political, institutional, and social context.
in the absence of systemic market failures, “private troubles” are not always best addressed by government
it is the analyst’s job to identify the central problem and distinguish it from related and underlying problems.
Acknowledging and promoting multi-causal problems can also help to engender broad-based support for an issue
What is the span and nature of the client’s authority to effect change? What are the time and resource constraints to solving the problem?
the analyst needs to do some self-reflection, to understand his or her own biases around an issue.
broader objectives and goals should first be identified before drilling down to more specific evaluative criteria. Criteria are also known as “impact categories”
seemingly benign goals like equity and security can become fundamentally political and subjective.
the analyst should not aspire to rid the analysis of any subjectivity, but rather to be cognizant of it and incorporate it into the decision-making process.
success of an option depends on how well it meets the needs and circumstances of the individuals that will use or engage with it.
understand how the omission of a particular dimension affects the outcome of the analysis. That is, by not considering a particular perspective or variable, how might the outcome of your analysis be biased?
An alternative to eliminating criteria is to instead develop proxies, which indirectly measure the outcomes of interest.
Effectiveness Equity (fairness) Feasibility (administrative, political, and technical) Cost (or financial feasibility) Efficiency
vertical equity assumes that those with more should bear a burden proportional to their position. For example, those with more income should pay higher taxes. Horizontal equity, on the other hand, assumes that everyone in similar circumstances should be treated alike, or “the equal treatment of equals”
delays in policy implementation are a function of the number of decision points; the number of participants at each point; and the intensity of their preferences.
Criteria related to efficiency assess the productivity, or “success,” of an option relative to the cost of implementing it; essentially effectiveness and cost are collapsed into a single metric.
Present Value of Cost = PV(Cost) = ∑t=0kCt(1+r)t
if the net present value (NPV) is positive, the project is performing better than the alternative uses off of which the discount rate was based.
CBA tends to lend itself to projects that require large up-front financial investments, have cost and revenue flows over a number of years (often decades), and involve both individual and social costs and benefits.
The costs are understood as resources employed and the benefits are the opposite, cost savings (or negative costs)
An allocation of goods is Pareto efficient if there is no other alternative that would make at least one person better off without making anyone else worse off.
“near-Pareto” improvements, which bring benefits to a large group and costs to a narrowly defined group.
Kaldor Hicks criterion, establishes the potential for compensating any losses. That is, an allocation can be efficient if those made worse off could be fully compensated for their losses.
a positive net benefit should indicate that the alternative is potentially Pareto improving.
Determine who or what has standing. Identify what costs and benefits to include (and how they will be measured). Assign monetary values to the costs and benefits. Apply time value of money methods. Use a decision criterion for moving forward.
common to include both the internal (individually borne) and external costs in the CBA.
what is most relevant for the analyst is the marginal cost (benefit) for the input (output) of interest. To obtain the total cost, the marginal dollar amount is multiplied by the quantity or volume of the input/output of interest.
If the government wanted to monetize the value of time saved in commuting from improved transportation investments, it could use wages from private sector jobs to capture gains in productivity.
Hedonic modeling (or regression analysis) is a method for valuing a good by breaking it down into its constituent characteristics.
The surveys set up hypothetical situations and respondents have to answer questions to reveal their willingness-to-pay (WTP).
employ sensitivity analyses to bound the results of the CBA. The resulting NPV will therefore be a range of values, reflecting various sets of assumptions and inputs, rather than a single “truth.”
When there is only one option under consideration other than the status quo, the IRR can be used as a decision criterion: the proposed project should proceed if the IRR is less than the designated discount rate.
the goal is not a definitive, singular NPV. Rather, the analyst should aim to gain an understanding of how the NPV fluctuates should central assumptions or conditions change, and especially, should they become less favorable.
when in the timeline benefits and costs are included is a critical component, and one that is often unpredictable as the time period extends farther and farther out.
when there is error in the analysis (which there inevitably will be), the best that the analyst can do is understand the direction (and magnitude) of that error so that the options can still be ranked relative to one another. If the direction and severity of the error are unclear, then the outcome of the CBA is more vulnerable to criticism.
The analyst’s goal should be twofold with respect to uncertainty: minimize it as best possible, and be transparent about it. One strategy for achieving these two goals is the bounding of NPV.
stratify the CBAs along some dimension that captures group differences and then run the CBAs separately for each group or (ii) to assign weights to certain inputs depending on the group to which they are attributed.
less restrictive method for assessing costs against benefits is CEA. Instead of monetizing both benefits and costs, this method monetizes costs and tracks benefits only in terms of metrics of “success.”
in transportation there is a large literature on the impacts of highway expansion and public transportation investment on traffic congestion (e.g., Milam et al. 2017; Anderson 2013).
In estimating the effects of alternative policy options, it is important to consider them in relation to the status quo,
