Cost-benefit Analysis Framework Research Articles

Addressing Partial Identification in Climate Modeling and Policy Analysis

Numerical simulations of the global climate system provide inputs to integrated assessment modeling for estimating the impacts of greenhouse gas mitigation and other policies to address global climate change. While essential tools for this purpose, computational climate models are subject to considerable uncertainty, including inter-model “structural” uncertainty. Structural uncertainty analysis has emphasized simple or weighted averaging of the outputs of multi-model ensembles, sometimes with subjective Bayesian assignment of probabilities across models. However, choosing appropriate weights is problematic. To use climate simulations in integrated assessment, we propose instead framing climate model uncertainty as a problem of partial identification, or “deep” uncertainty. This terminology refers to situations in which the underlying mechanisms, dynamics, or laws governing a system are not completely known and cannot be credibly modeled definitively even in the absence of data limitations in a statistical sense. We propose the min-max regret (MMR) decision criterion to account for deep climate uncertainty in integrated assessment without weighting climate model forecasts. We develop a theoretical framework for cost-benefit analysis of climate policy based on MMR, and apply it computationally with a simple integrated assessment model. We suggest avenues for further research.

The current use and potential of cost benefit analysis in water sector projects

Abstract The investment needed in global water infrastructure is significant. Infrastructures in water supply and sanitation alone are expected to require USD 6.7 trillion by 2050. These infrastructures must provide investment justifications when seeking funding from disbursement sources, in competition with other services (such as health, education, transport, elderly care etc.). We present a review that identifies monetary valuation gaps in regional and global cost benefit analysis (CBA) guidelines that underpin investment justifications. Case studies of Scandinavian appraisal reports written according to these guidelines indicate an alarmingly low use of monetary valuation on socioeconomic and environmental impacts caused by water sector projects. The findings suggest a need for broader and more accessible recommendations for water sector specific valuation methods. The need to develop a more accessible CBA framework for water infrastructure project managers is theoretically discussed, with emphasis on utilising monetary valuation methods and secondary source data. We identify valuation methods fragmentally discussed in the guidelines that should be adapted and applied, in time and cost-efficient ways, to water infrastructure projects.

Fighting Cyber-Attacks With Sanctions: New Threats, Old Responses

This paper contributes to the understanding of why states resort to ‘good old’ sanctions to meet the relatively new threat of cyber intrusions and whether this type of response is a forced measure or an effective tool to halt, prevent and punish attacking states. The tools of analysis used in this paper are legal positivism, and political and economic theories, including Mancur Olson’s theory of groups, Francesco Giumelli’s analytical framework for sanction assessment, cost-benefit analysis and game theory. The authors address the effectiveness of sanctions as a reaction to cyber-enabled activities through the lens of regulation introduced in the US and the EU, which are the most developed counter-cyber sanction regimes, analyzing publicly known cases of cyber-related sanctions.

A stochastic cost–benefit analysis framework for allocating energy storage system in distribution network for load leveling

Increasing peak demand, retirement of conventional generation capacity, and high cost of constructing new generation capacity and network reinforcements are the challenges faced by utilities in urban cities. To address the above challenges, this paper proposes a stochastic cost–benefit analysis (CBA) framework, named CBA-LL, for allocating centralized energy storage system (ESS) in distribution network for load leveling. CBA-LL is built on a scenario-based stochastic optimization approach that integrates principal component analysis and k-means clustering for effective probabilistic load modeling. In CBA-LL, a genetic algorithm (GA) based optimization approach is utilized over a multi-year planning horizon for ESS sizing. Within the GA, the optimal operation of ESS for load leveling is determined using fmincon solver of MATLAB with the objective of minimizing load variance. The benefits of integrating ESS in terms of distribution system upgrade cost, distribution energy loss cost, arbitrage benefit, and generation plant upgrade cost are considered. In CBA for ESS allocation, the financial objective chosen is generally maximizing net savings (NS) (also known as net present value (NPV)). However, the limitation of NS objective function is that it does not consider the scale of investment required to achieve the objective. ROI and NS are two important and complimentary criteria in investment decision making. However, to the best of our knowledge, ROI has never been investigated in the literature as a planning objective function for sizing ESS. Hence, in this paper, we investigate maximizing ROI as a planning objective function and compare it with maximizing NS objective function. The proposed CBA-LL approach is implemented on a 33-bus distribution system, and two types of ESS technologies, namely, Li-ion and Vanadium Redox Flow (VRF) are compared. The simulation results demonstrate the complementary nature of NS and ROI objective functions. Furthermore, the simulation results highlight that ROI objective function may be more preferable when there is a lack of investment budget or high opportunity cost of investment. Our analysis suggests that the decision makers (DM) can investigate both NS and ROI objective functions for ESS sizing and then select a solution based on a more informed decision. The comparison of battery technologies demonstrate that the Li-ion battery is significantly superior to the VRF battery for the load leveling application.

A Framework for Cost-Benefit Analysis of Totalization Agreements

A Framework for Cost-Benefit Analysis of Totalization Agreements

A Framework for Cost-Benefit Analysis of Totalization Agreements

International social security totalization agreements eliminate double social security taxation for workers who reside and work in different country from their home country. Because totalization agreements affect a number of economic agents in a variety of ways, we develop a cost-benefit framework of totalization agreements to facilitate the comparison and assessment of these impacts from a cost-benefit perspective. It lists the important stakeholders and the types of potential effects of the agreement on them, and attempts to quantify each type of effects for each stakeholder. The framework can be useful to policy makers and researchers to evaluate the economic implications of current or proposed future agreements, depending on scenarios of economic conditions, characteristics of partner countries, and how they affect different stakeholders. The paper also summarizes what is currently known about the effects and related costs and benefits of totalization agreements. We provide relatively simple and straightforward example calculations for some of these effects, as well as calculations using a stylized micro-economic model for workers and a stylized macro-economic model for firm investment and production allocation. In a few cases, we have both simple calculations of direct effects and model calculations that take more channels into account (under strong assumptions), and they agree well, implying that the simple calculations capture most of the total effect.

Optimal planning of distributed photovoltaic generation for the traction power supply system of high-speed railway

The ever-increasing electricity price and energy consumption in high-speed railway industry push railway companies to seek a promising way to realize their sustainable developments. Making full use of the solar resource along with high-speed railways can be a potential solution to cut the electricity bill, bring more profit to railway companies and realize the decarbonization of high-speed railway industry. This paper studies the optimal planning of distributed photovoltaic generation (DPVG) and energy storage system (ESS) for the traction power supply system (TPSS) of high-speed railway. A quantitative method is proposed to study the time and space characteristics of photovoltaic generation and electricity demand of high-speed trains. An integrated cost-benefit analysis framework is developed to evaluate the effect of DPVG and ESS on the economy of TPSS. To derive the optimal planning scheme and energy management strategy of DPVG and ESS, a mathematical programming model with the objective of minimizing the total cost is proposed to seek the most economical solution. A hybrid global optimal solution approach is developed to solve the model. A real-world case of Beijing-Baoding high-speed railway in China is used to illustrate the capability and characteristics of the proposed model. The computational results show that DPVG is able to supply 32.5% electricity demand of high-speed trains. The integration of DPVG and ESS can help railway company save 4.2 million CNY each year in Beijing-Baoding high-speed railway. This paper demonstrates the potential and applicability of DPVG and ESS in high-speed railway industry.

The application of economics in the policy formulation to manage peat swamp forests as important ecosystems in climate change

Forest resources can provide benefits according to their capacity if there is an efficient resources allocation. Efficient allocation requires an assessment of value of benefits for the entire economy, not just financial benefits for business entities. Currently, degraded natural peat swamp forests within production forest areas are faced with the choice of being managed as natural forests, plantations forests or converted into plantations. Financial benefits are seen as more tangible and prominent benefits than economic benefits in policy formulation. This study aims to apply appropriate economic analysis methods to formulate policies for allocating forest resources efficiently. A comprehensive cost benefit analysis framework by internalizing environmental costs is used to formulate management policy of degraded natural peat swamp forest. This research is a case study in Sungai Merang-Sungai Ngirawan Peat Hydrological Unit (PHU). The results indicate that secondary peat swamp forests are more appropriately managed as secondary natural production forests rather than if it is managed as industrial plantations or converted to plantations. The use of a science framework in the practice of policy formulation is expected to support the sustainable forest development, especially in relation to climate change.

Legume seed production for sustainable seed supply and crop productivity: case of groundnut in Tanzania and Uganda

ABSTRACTImproving agricultural productivity and production is a prerequisite to sustain rural livelihoods in developing countries of sub-Saharan Africa (SSA). This requires increased use of quality seed of improved and well-adapted crop varieties. Legumes are particularly critical in ensuring food and nutritional securities of the majority of farming households. However, their productivity has been constrained because of limited availability of quality seed, jeopardizing henceforth food security and rural livelihoods. The lack of interest in production of legume seeds by potential seed producers, especially the private sector, is attributable to limited information on the cost and profitability of producing these seeds. Using primary data collected from Tanzania and Uganda, we analyzed the cost structure of improved groundnut (Arachis hypogaea L.) seed production to assess viability. We adopted cost-benefit analysis framework to evaluate different seed production models. Results showed that groundnut seed price varied between 1 and 2 US$ kg−1 for certified and quality declared seed and between 2 and 3.5 US$ kg−1 for early generation seed. Overall, up to 50% increase in total seed production costs resulted in reduced drop in the gross margin earned. However, when production costs increased by 75–100%, the gross margin dropped by about 18% and 50% in Tanzania and in Uganda, respectively. These findings indicated that groundnut seed could be provided to farmers in remote communities at an affordable price while still keeping seed producers profitably in business. Availing these seeds to smallholder producers is a major step in achieving food security and nutritional health in developing countries in SSA.

A Social Cost-Benefit Analysis of the Vehicle Restriction Policy for Reducing Overtourism in Udo, Korea

Overtourism has given rise to conflict among various stakeholders. Accordingly, to control overtourism, the public sector has started to implement policies. Recently, Udo off Jeju Island in South Korea has begun experiencing overtourism; to prevent the situation from deteriorating, the public sector implemented a vehicle restriction policy. This study used a cost-benefit analysis framework to assess the social costs and benefits of the public policy to control overtourism in Udo. Through interviews and relevant data and documents, this study classified analysis items related to the policy that could be either a cost or benefit to different stakeholders. The social cost-benefit analysis showed that the net benefit increases, the longer the policy continues, thus ensuring it is adequate and feasible to implement the policy. An effective management public policy for the sustainability of the region’s tourism should always be promoted.

Workshop: Social Cost-Benefit Analyses in Public Health

Abstract Economic evaluation in health care has a long-standing tradition in Europe, especially in the United Kingdom and the Netherlands. The incorporation of economic evaluations in resource allocation decisions is increasingly becoming embedded in national guidelines. In other fields, however, the social cost-benefit analysis (SCBA) framework has been used for a vast period of time, especially in fields such as logistics or transportation. A social cost-benefit analysis (SCBA) evaluates the favorable and adverse effects of policy actions and the associated opportunity costs of those actions. The favorable effects are defined as the benefits, and the opportunities foregone are defined as the economic costs. The SCBA provides an overview of all effects, risks and uncertainties of a policy, and the resulting advantages and disadvantages for society as a whole. By quantifying and monetary valuing these advantages and disadvantages as much as possible in Euros, the SCBA provides insight into the impact of the measure on social welfare, expressed as the balance of benefits (in Euros) minus the costs. In 2013, Dutch guidelines were developed for the proper and standardized execution of SCBA of future policies in public health. Building on this increased awareness, in 2014, the National Institute for Public Health and the Environment (RIVM) published reports on SCBA for prevention and care. Since then, a few SCBA’s have been published which evaluated various regulatory policies. The aim of this session will be to elaborate on 1) the SCBA methodology and to provide a brief introduction to methodological aspects (no abstract provided); 2) a SCBA to evaluate the consequences of Cognitive Behavioral Therapy for alcohol and cannabis addiction; 3) a SCBA to evaluate the consequences of tobacco control policies; and 4) a SCBA to evaluate the consequences of three policies to limit alcohol use; and 5) a SCBA to evaluate the consequences of two interventions to prevent toxoplasmosis. Key messages SCBA is a fairly new method in health care to map the consequences of long-term policy measures. With the help of an SCBA it is possible to indicate who pays for and who benefits from an intervention.

Cost–benefit analysis of distributed energy systems considering multi-benefits and multi-stakeholders

Total costs and benefits examination of a distributed energy system (DES) is essential to estimate whether a project is economically beneficial or not. In addition, because a DES usually involves various stakeholders, to maintain the cooperative relationship of them, a cost-benefit analysis (CBA) from each stakeholder’s perspective is also of vital importance. In this study, a Mixed Integer Nonlinear Programming (MINLP) model is proposed to deduce the optimal energy supply strategy of a DES. To execute a comprehensive assessment, besides the direct economic benefits, various non-energy ones are also paid enough attention to. Moreover, to implement the CBA, multi-benefits especially the non-energy ones are quantified and monetized using specific transferring methods to exploit their effects in monetary terms. As a result, a systematic CBA framework is developed considering both multi-benefits and multi-stakeholders for a DES. According to the simulation results of a case study, the exploitation of various non-energy benefits is significant which may entirely reflect the social values of a DES. Also, the CBA from each stakeholder’s viewpoint may increase their motivation to join the benefit-sharing union effectively. Furthermore, second benefit trade-off may be required to ensure the satisfied profit return for each stakeholder.

Wisconsin PROMISE cost-benefit analysis and sustainability framework

Wisconsin PROMISE cost-benefit analysis and sustainability framework

An economic analysis of a contingency model utilising vaccination for the control of equine influenza in a non-endemic country.

BackgroundEquine influenza (EI) is an infectious respiratory disease of horses that has never been reported in New Zealand (NZ). However, the 2007 EI outbreak in Australia, previously EI free, spurred the NZ government and stakeholders into evaluating alternative EI control strategies in order to economically justify any future decision to eradicate or manage EI. To build on the policy debate, this paper presents an epinomic (epidemiologic and economic) modelling approach to evaluate alternative control strategies. An epidemiologic model to determine how alternative EI control strategies influence the distribution of EI. Model results were then input into a cost-benefit analysis framework, to identify the return and feasibility of alternative EI eradication strategies in NZ.MethodsThe article explores nine alternative eradication scenarios and two baseline strategies. The alternative scenarios consisted of three vaccination strategies (suppressive, protective or targeted) starting at three time points to reflect the commercial breeding-cycle. These alternatives were compared to two breeding-cycle adjusted baselines: movement restriction in the breeding season (August to January) or non-breeding season (February to July). The economic loss parameters were incursion response, impact to the commercial racing industry (breeding, sales and racing), horse morbidity and mortality, and compensation to industry participants.Results and conclusionsResults suggest that the economic viability of the EI eradication programme is dependent on when within the breeding-cycle the EI outbreak occurs. If an outbreak were to occur, the return on each dollar invested for protective or suppressive vaccination strategies would be between NZD$3.67 to NZD$4.89 and between NZD$3.08 to NZD$3.50 in the breeding and non-breeding seasons, respectively. Therefore, protective or suppressive vaccination strategies could be prioritised, regardless of season. As multiple industry stakeholders benefit from these strategies, the study will enable policy development and to better formulate a user-pays eradication programme.

Is straw return-to-field always beneficial? Evidence from an integrated cost-benefit analysis

Straw return-to-field is regarded as a very effective option to avoid straw burning during harvest seasons and has been widely implemented in China. However, whether straw return-to-field is good for croplands as well as existing straw utilization facilities is not a simple yes or no question. Taking Jiangsu Province as an example, this study constructs a cost-benefit analysis framework, within which six scenarios with different return-to-field ratios are carefully designed, and the net benefits of the croplands as well as the existing straw power plants are calculated and compared, considering both environmental and economic aspects. The results show that as the straw return-to-field ratio increases, the profit of straw power plants continues to decline, while the net benefit of the straw return-to-field in the croplands increases initially and then decreases, resulting in an initial increase followed by a decrease in the net benefit of the whole region. Based on the results, the optimal straw return-to-field ratio is recommended as approximately 60%, which is much lower than the current ratio (98%) in the case of Jiangsu Province. Therefore, integrated impacts on both croplands and related industries should be carefully considered when designing and implementing straw return-to-field and other agricultural policies.

Crowding valuation in urban tram and bus transportation based on smart card data

ABSTRACTCrowding in public transport can be of major influence on passengers’ travel experience and therefore affect route and mode choice. In this study, crowding valuation for urban tram and bus travelling is determined fully based on revealed preference data. Urban tram and bus crowding valuation is estimated in a European context based on a Dutch case study network. Based on the estimated discrete choice model, we conclude that crowding plays a significant role in passengers’ route choice in public transport. The average crowding multiplier of in-vehicle time equals 1.16 when all seats are occupied. For frequent travellers, this value is equal to 1.31. Our study results suggest that infrequent travellers do not incorporate expected crowding in their route choice. The insights gained from our study can support the decision-making process of policy-makers, by quantifying the benefits of measures aiming to reduce crowding levels for example in a cost–benefit analysis framework.

Determinants of loan securitization in Chinese banking: Cost-benefit-based analysis

This study examines the determinants of commercial banks' loan securitization in China. We consider five hypotheses for the securitization determinants—liquidity demand, regulatory arbitrage, performance promotion, risk transfer and cost advantage exploitation, based on the cost-benefit analysis framework of banks' incentives. To examine these hypotheses empirically, this study employs the factor analysis to summarize the information from some financial indicators that reveals the banks' determinants for securitization. Moreover, by using the Logistic model and Tobit model to study the Chinese commercial banks' data from 2012 to 2017, we find that the real determinants of Chinese banks' securitization include cost advantage exploitation, performance promotion and capital regulatory arbitrage. Based on these findings, we conclude that China's loan securitization market welcomes large state-owned commercial banks with higher ratings rather than small- and medium-sized banks with poor asset quality. These findings indicate that the regulatory authorities should promote the rating accuracy of credit asset-backed securities in order to increase the transparency of information and should restrict unregulated shadow banking channels, leading banks to extend credit assets and to improve the efficiency of capital with securitization tools.

Life-cycle cost-benefit analysis on sustainable food waste management: The case of Hong Kong International Airport

Abstract Food waste is responsible for a significant portion of solid waste generation in the international airports, where efficient on-site or off-site sorting and recycling may be feasible. The aim of this study is to develop a Life-Cycle Cost-Benefit Analysis (LC-CBA) framework, through the integration of the life-cycle assessment (LCA) and cost-benefit analysis (CBA), to guide decision-making in sustainable food waste management. The analysis tool assesses the environmental and economic performance of different food waste management options, as demonstrated in a case study of the Hong Kong International Airport with six food waste handling scenarios consisting of different combinations of treatment technologies. Both centralized (i.e., off-site) and on-site treatment options were evaluated. The on-site incineration scenario was found to be the most sustainable option with the lowest life-cycle net costs of HKD 461.73/tonne. The scenario achieved the highest energy recovery of 707 kWh/tonne, which led to an economic savings of HKD 697.81/tonne and an environmental savings of HKD 470.96/tonne. The LC-CBA developed in this study is widely applicable to inform decision-making on sustainable food waste management worldwide.

Cost-benefit analysis for invasive species control: the case of greater Canada goose Branta canadensis in Flanders (northern Belgium).

BackgroundSound decisions on control actions for established invasive alien species (IAS) require information on ecological as well as socio-economic impact of the species and of its management. Cost-benefit analysis provides part of this information, yet has received relatively little attention in the scientific literature on IAS.MethodsWe apply a bio-economic model in a cost-benefit analysis framework to greater Canada goose Branta canadensis, an IAS with documented social, economic and ecological impacts in Flanders (northern Belgium). We compared a business as usual (BAU) scenario which involved non-coordinated hunting and egg destruction with an enhanced scenario based on a continuation of these activities but supplemented with coordinated capture of moulting birds. To assess population growth under the BAU scenario we fitted a logistic growth model to the observed pre-moult capture population. Projected damage costs included water eutrophication and damage to cultivated grasslands and were calculated for all scenarios. Management costs of the moult captures were based on a representative average of the actual cost of planning and executing moult captures.ResultsComparing the scenarios with different capture rates, different costs for eutrophication and various discount rates, showed avoided damage costs were in the range of 21.15 M€ to 45.82 M€ under the moult capture scenario. The lowest value for the avoided costs applied to the scenario where we lowered the capture rate by 10%. The highest value occurred in the scenario where we lowered the real discount rate from 4% to 2.5%.DiscussionThe reduction in damage costs always outweighed the additional management costs of moult captures. Therefore, additional coordinated moult captures could be applied to limit the negative economic impact of greater Canada goose at a regional scale. We further discuss the strengths and weaknesses of our approach and its potential application to other IAS.

Evading Portfolio Royalties for Standard-Essential Patents Through Validity Challenges

A no challenge clause prevents a patent licensee from challenging the validity of a licensed patent. In the 2014 Guidelines on Technology Transfer Block Exemption Regulation, the European Commission discouraged parties from including a no challenge clause in a settlement and license agreement concerning standard essential patents (SEPs). The Commission said that eliminating invalid patents serves the public interest because it promotes competition. For similar reasons, in 2014, the Advocate General of the Court of Justice of the European Union opined in Huawei Technologies Co. v. ZTE Corp. that EU competition law should allow a licensee to retain the right to challenge a licensed SEP’s validity notwithstanding that the licensee has entered into a settlement and license agreement with the SEP holder. I analyze the Commission’s and the Advocate General’s assumption that a licensee’s challenging the validity of SEPs unambiguously benefits consumers. I assess the merits of that legal proposition within the well established economic framework of cost benefit analysis. I particularly focus on the marginal benefits and the marginal costs that eliminating no challenge provisions would generate for consumers. I explain that the Commission and the Advocate General exaggerated the marginal benefits and understated the marginal costs of validity challenges to licensed SEPs, particularly when the typical SEP holder repeatedly licenses its SEPs in a large portfolio to a sophisticated licensee. The discovery that several SEPs in a licensed portfolio of hundreds are invalid would neither surprise the parties nor justify reducing the portfolio royalty. The Commission and the Advocate General ignored that encouraging a licensee to challenge the validity of individual licensed SEPs invites opportunistic litigation by the licensee so as to delay paying the SEP holder the agreed-upon royalty for the use of the many more valid patents in its licensed portfolio. Thwarting the SEP holder’s ability to receive prompt compensation for its innovative contribution lessens the SEP holder’s incentive to invest in innovation and thus decreases quality of collective standard setting. Those effects in turn impose significant marginal harm on consumers. Consequently, the Commission and Advocate General erred to assume that consumers derive a net marginal benefit from the announced policy encouraging a licensee to challenge to the validity of licensed SEPs.