Conventional Cost-benefit Analysis Research Articles

Methodological Framework for Strategic Assessment of Transportation Policies: Application for Athens 2004 Olympic Games

Consistent decision making requires a structured, systematic evaluation of the advantages and disadvantages of different choice possibilities. For the evaluation of transportation policy measures, various multicriteria analysis (MCA) methods have been developed to complement conventional cost–benefit analysis. These methods investigate and evaluate all relevant effects of an alternative by introducing some key policy criteria that are particularly relevant in assessing strategic-level impacts, such as environmental impacts and equity issues. Design of the appropriate assessment approach has to take into account the different problem settings in which decision making takes place. That is particularly important in the context of evaluating policies as opposed to plans and programs, such as evaluating transportation policies at the strategic level in contrast to evaluating transportation projects. Hence, there is a clear need for a systematic approach to the strategic assessment of transportation policies. That need is addressed: an evaluation and assessment framework based on three widely used MCA methods is presented, and a comprehensive framework for the strategic assessment of spatial–economic and environmental–economic transportation policy instruments is provided. This framework is applied in the specific case of the Athens 2004 Olympic Games to test its robustness and assist in the formulation of policy actions.

An Application of Geographic Information System (GIS) to a Fictitous Thermal Power Plant in Mersin, Türkiye: An Application of Dispersion Modelling Coupled with GIS

In this study, local air quality impacts of a proposed conventionalcoal-fired power plant in the Icel region has been investigated using numerical dispersion modeling studies coupled with a GIS application. Within the impact area of the facility, Industrial Source Complex Short Term (ISCST2) dispersion model has been used to estimate ground-level concentrations of air pollutants originating from the power plant. For the same impact area, GIS applications have been utilised to determine the agricultural yield distribution. For this purpose, relevant satellite images were digitised, classified and statistically analyzed. Based on the predicted ground-level pollutant concentrations and sensitivity of the agricultural crops to the pollutants, agricultural yield loss was estimated for the impact area.The results have been quantified and valuated in monetary terms for the purpose of performing an environmental cost benefit analysis. Comparison of the conventional cost benefit analysis with the environmental cost benefit analysis showed the significance of the external cost of the proposed facility, resulting from the environmental damages.

Bequests, control rights, and cost–benefit analysis

Consider a public project that produces a consumption good that benefits future generations. Let a conventional cost–benefit analysis find that it gives higher benefits than projects it would displace in the private sector. Voters may, nevertheless, oppose the public project: the combination of a desire to control bequests and the lack of control over who benefits from a public project makes the public project unattractive. In contrast, private projects have owners, allowing parents to control whether their children will receive the benefits from such projects. Parents can, therefore, better influence the behavior of their children when they have the option of giving the children title to private projects.

A multicriteria decision support methodology for evaluating airport expansion plans

Rational decision-making requires an assessment of advantages and disadvantages of choice possibilities, including non-market effects (such as externalities). This also applies to strategic decision-making in the transport sector (including aviation). In the past decades various decision support and evaluation methods have been developed in which a market evaluation played a prominent role. The intrinsic limitations of these approaches were also increasingly recognised. Gradually, a variety of adjusted multidimensional methods has been developed over the past years to complement conventional cost–benefit analysis (CBA). These methods aim to investigate and evaluate all relevant impacts of a choice possibility (e.g., project, plan, or programme) on the basis of a multitude of important policy criteria (so-called multicriteria methods). They have a particular relevance in case of non-priced or qualitative effects. There is a clear need for a systematic and polyvalent multicriteria approach to many actual planning issues, such as land use or transportation. This paper offers a new evaluation framework based on a blend of three types of approaches, viz. Regime Analysis, the Saaty method and the Flag Model. All these methods have been developed separately in the past; the paper makes an effort to offer a cohesive framework, which can be used for the e valuation of spatial-economic and environmental-economic policy issues. This new tool is tested by means of a case study on conflicting plans (and policy views) for airport expansion options in the Maastricht area in the southern part of The Netherlands.

Bequests, Control Rights, and Cost-Benefit Analysis

Consider a public project which produces a consumption good and which benefits future generations. Let a conventional cost-benefit analysis find that it gives higher benefits than projects it would dis-place in the private sector. Voters may nevertheless oppose the public project: the combination of a desire to control bequests and the lack of control over who gets benefits from a public project makes the public project unattractive. In contrast, private projects have owners, allowing parents to control whether their children will receive the benefits from such projects. Parents can therefore better influence the behavior of their children when they have the option of giving the children title to private projects.

NATIONWIDE SURVEY ON DAMAGES DUE TO WAVE OVERTOPPING

Damages due to wave overtopping were investigated through a nationwide questionnaire distributed among regional construction bureaus and local governments. Wave overtopping in recent 7 years was found to be reported at more than 250 coasts facing open sea as well as inner bay. In addition to the tangible damages of flooding and destruction of coastal structures, wave overtopping also causes serious damages of salt invasion to land and traffic interruption, which were not included in conventional cost-benefit analysis. The relationship between the damage level and the strength of wave overtopping was investigated, revealing high correlation for coastal structure destruction and low for salt invasion.

Project Appraisal for the Keynesian Investment Planner

This paper outlines a theory of project appraisal wherein the neoclassical premises of conventional cost-benefit analysis are replaced by their Keynesian counterparts. The paper shows how the social rate of return on public and private investment, the private and social discount rates, and other concepts used in cost-benefit analysis may be modified to take account of the income externalities generated by the multiplier, mark-up pricing, and the causal priority of investment over saving.

Rural Policy Reform and Local Development Programmes: Appropriate Evaluation Procedures

As a result of various political and economic pressures, European policies that affect rural regions have evolved to become more local and participatory, reflecting diverse and rapidly changing circumstances. The experimental LEADER programme has attempted to instigate innovative responses to characteristic rural problems by focusing on very small districts and providing funding directly to local people and their representatives, and this has raised problems in assessing their impact and success in conventional terms. Few accurate statistics are available at such a disaggregated level, and the greater impact of external influences obscures quantitative relationships that could be investigated using conventional cost‐benefit analysis. Several illustrative individual LEADER group evaluation studies are used to construct an account of the difficulties involved in use of project outcomes, targets and indicators to describe the qualitative changes resulting from local, integrated projects. The major approaches, of semi‐structured in‐depth interviews, participant observation and documentary analysis are considered and used to place evaluation in the theoretical context of Habermas's concept of communicative competence. It is concluded that evaluation should be integral to local rural development projects, and that whilst a range of investigative approaches have been used, in contrast there is scope for extension of the range of analytic approaches.

Organizational Politics, Strategic Change and the Evaluation of CAD

This paper uses a ‘case in sector’ analysis to investigate the extent to which the success criteria imposed by cost accounting constrains the ability of engineers to acquire and make effective use of computer aided design (CAD). The paper examines two periods of CAD investment in a sample of UK manufacturers. In the first ‘early adoption’ period CAD proposals were made by junior engineers on a locally initiated ‘bottom up’ basis. Proposals were made according to the dictates of conventional cost benefit analysis, engineering and accounting priorities were separate, and senior management were not involved. In the second ‘general adoption’ period there was a general uptake of CAD throughout the sector. The paper demonstrates that the evaluation of CAD was influenced not just by the rival claims of accountants and engineers, but also by long run changes in the operating environment, and by the control devices employed by senior management. The findings bear out the view of technological change as a socially negotiated process. However, it would appear that the oranizational practices associated with CAD evaluation are continually re-negotiated in the light of dynamic organizational interests and changes in the broader sectoral context.

Organizational politics, strategic change and the evaluation of CAD

This paper uses a ‘case in sector’ analysis to investigate the extent to which the success criteria imposed by cost accounting constrains the ability of engineers to acquire and make effective use of computer aided design (CAD). The paper examines two periods of CAD investment in a sample of UK manufacturers. In the first ‘early adoption’ period CAD proposals were made by junior engineers on a locally initiated ‘bottom up’ basis. Proposals were made according to the dictates of conventional cost benefit analysis, engineering and accounting priorities were separate, and senior management were not involved. In the second ‘general adoption’ period there was a general uptake of CAD throughout the sector. The paper demonstrates that the evaluation of CAD was influenced not just by the rival claims of accountants and engineers, but also by long run changes in the operating environment, and by the control devices employed by senior management. The findings bear out the view of technological change as a socially negotiated process. However, it would appear that the oranizational practices associated with CAD evaluation are continually re-negotiated in the light of dynamic organizational interests and changes in the broader sectoral context.

Hard Methods for Soft Policies: Environmental and Social Cost-Benefit Analysis

Summary Arild Angelsen and Ussif Rashid Sumaila, ‘Hard Methods for Soft Policies: Environmental and Social Cost-Benefit Analysis’, Forum for Development Studies, 1996:1, pp. 87–114. The quest for sustainability has put the conventional Cost-Benefit Analysis (CBA) technique under fierce attack in the recent past. As a result, several alternative appraisal methodologies have been put forward in the debate. This article argues that much of the criticism is either misplaced or based on misunderstandings. Moreover, insofar as such criticisms against CBA are valid, similar criticisms can be levelled against most of the other methodologies being advanced. We also argue that the alternative methodologies suggested, typically under the Environmental Impact Assessment (EIA) or Multi Criteria Analysis (MCA) headings, are not necessarily wrong but simply insufficient because they do not provide a consistent framework for making the unavoidable hard choices.

Lifetime costing of the body-in-white: Steel vs. aluminum

In order to make informed material choice decisions and to derive the maximum benefit from the use of alternative materials, the automobile producer must understand the full range of costs and benefits for each material. It is becoming clear that the conventional cost-benefit analysis structure currently used by the automotive industry must be broadened to include nontraditional costs such as the environmental externalities associated with the use of existing and potential automotive technologies. This article develops a methodology for comparing the costs and benefits associated with the use of alternative materials in automotive applications by focusing on steel and aluminum in the unibody body-in-white. Authors' Note: This is the first of two articles documenting a methodology for evaluating the lifetime monetary and environmental costs of alternative materials in automotive applications. This article addresses the traditional money costs while a subsequent paper, which is planned for the August issue, will address the environmental externalities.

Efficiency of Water-Supply and Sanitation Projects in Ghana

The efficient use of scarce resources for domestic water supply and sanitation is particularly vital in low-income countries. Conventional cost–benefit analysis gives an indication of the appropriateness of projects but often fails to reflect factors that cannot be assigned monetary values. A form of linear programming, data envelopment analysis, is used to measure a single-efficiency score for 10 water supply and sanitation projects in Ghana, relating noncommensurate technical, financial, economic, institutional, social, and environmental inputs to output factors of reliability, utilization, and convenience. Following the experiences of the Water Decade, the desired public-health benefits were deemed to follow from the utilization of reliable and convenient facilities. Results suggest that capital- and management-intensive projects for water supply in major cities are as efficient as community-based rural sanitation schemes based on pit latrines. Within these two extremes, many projects are failing to re...

Sustainability, the discount rate, and intergenerational effects within a regional framework

Although it is easy to subscribe to the concept of sustainability, it is well-known that disagreements begin once we try to apply the concept to concrete cases. This paper spells out, in the case of forestry, the features of the concept that lead not only to confusion, about which there is already a vast literature, but also to contradictions among decision models which use a discount rate and government regulations inspired by substainability. Indeed, forestry analysis highlights weaknesses of conventional cost-benefit analysis when it gets involved into intergenerational effects. Sustainability forces this involvement. On the other hand, discounting is an essential condition for optimally allocating resources over time. This paper reconciles intergenerational transfers with discounting through the bequest method. Among other things, the bequest method provides a rationale for various degrees of weak sustainability. The regionalization of the method shows that one of its basic components, the contingent valuation method (to specify the bequest), works even better at the regional level, while another basic component, partial equilibrium analysis, does not appreciably hinder national or global optimization.

Pecuniary externalities and project appraisal

The effects of projects on prices have often been ignored by economic cost-benefit analysts, on the grounds that they are redistributive, with no efficiency implications. Social cost-benefit analysts argue that, usually, price effects are negligibly small. However, a model closed economy has indicated that pecuniary externalities can induce significant secondary changes in utility: shifts in production occur in distorted markets linked with the project; increased factor demand and distributed project profit produce distributional effects not captured in cost-benefit analysis; factor inertia traps secondary effects on income distribution; reduced price for project output favours all consumers of the project good. These effects are significant in relation to the direct effects measured by conventional cost-benefit analysis, regardless of the size of the project.

Multiple futures and multiple discount rates in multiple criteria analysis

This paper explores the existence of a bridge between multiple criteria analysis (MCA) and conventional cost-benefit analysis (CBA) by focusing attention on the role the future plays in each. In this context, the impact of social rates of discount on the final choice of an alternative is emphasised. It is demonstrated that MCA has a weak tradition in this respect. Various ways of incorporating alternative views on future developments (based on multiple criteria), like risk, multiple generations and so on are discussed. The role of uncertainty (and strategic behaviour under uncertainty) is discussed. It is concluded that an integration of notions from CBA and MCA is a useful improvement in coping with multi-temporal aspects of decision analysis. In addition, the CBA-MCA framework could be extended with elements from option theory for the valuation of future investment opportunities.

An economic analysis of environmental protection and management: An example from the Philippines

The island of Palawan covers some 12000 km2 and is located in the southwest of the Philippines archipelago. It is a beautiful and as yet relatively unspoilt island but in recent years the social and economic pressures on its natural resources and environment have begun to mount. If present trends continue, severe environmental damage will result. In recognition of this danger, the Philippines government and the European Economic Community have commissioned the preparation of an Integrated Environmental Program (IEP) for the island, as part of an overall economic development program. Phase one of the IEP study comprised an assessment of the island's resources and present situation and the formulation of a plan for the future protection of its environment, taking due account of the need for continuing economic development. An analysis was made of the likely economic returns from the proposed environmental protection program, using conventional benefit-cost analysis methodology. Due to the inadequate data base and the wide-ranging assumptions which had to be made, this was inevitably very approximate in nature. It was carried out in terms of the three main types of conservation activity proposed, namely land-based conservation, mangrove conservation and inshore marine conservation, and the program as a whole. The main benefits and costs were identified and, where appropriate, quantified for inclusion in the analysis. Choice of discount rate and length of analysis period are critical factors affecting the economics of environmental protection, which essentially involves the pursuit of long-term rather than short-term gains, output in the immediate future being restricted to the level of long-term sustained yield for the benefit of future generations. Use of the high discount rates customarily applied for project analysis in countries such as the Philippines (typically, 10–15 percent) places a heavy premium on short-term gains and attributes little or no value to benefits and costs further in the future. To take account of this problem the present values of costs and benefits were calculated using low discount rates of zero and 5 percent. Though this was a necessarily crude and arbitrary method of adjustment it was considered to be a better alternative than that of following normal convention and applying the high rates of discount customarily used in the Philippines. The analysis indicated that the various conservation activities could be expected to produce acceptable, though not spectacular, levels of economic return. Mangrove conservation would be particularly beneficial and the irrigation benefits from preserving river base flows and preventing an increase in peak floods, by means of catchment protection, would be high. The unquantifiable ecological and social benefits would also be substantial.

Acid deposition control

The assets and liabilities of using benefit-cost analyses to guide policy choice in the acid rain controversy are discussed. Because of the dominant dynamic and stochastic features of acid deposition control, it is recommended that the conventional benefit-cost analysis be used with caution. It should be used primarily to illustrate the natural system consequences of market responses and people's adaptations to variations in acid deposition levels. 18 references, 2 tables.

Economics of salinity control in Sri Lanka: Some exploratory results

This paper documents the results of a financial and economic analysis of salinity control in one of the major irrigation projects in Sri Lanka. Conventional benefit-cost analysis was adopted in computing the benefit-cost ratios on the basis of plausible assumptions. The study indicates the returns to salinity control to be high, both from the financial and the economic points of view. The sensitivity of the results to changes in key parameters revealed that the returns are most sensitive to the yield gains achieved through drainage installations. In the economic analysis, the largest impact was observed for the price of paddy. The rates of return obtained in the economic analysis are higher than the financial returns, indicating the usefulness of government policy instruments such as subsidies for salinity control.

Project appraisal and planning for overdeveloped countries: II. Shadow pricing under uncertainty

In the uncertainty that surrounds the future availability of nonrenewable natural resources and the efficacy of technological advance, the economic costing of resources should be undertaken probabilistically. While optimistic assumptions entail little change from the costing procedures used in conventional cost-benefit analysis, even moderately pessimistic assumptions lead to a much increased cost for nonrenewable resources. These lead in turn to a reappraisal of the value of investment and of the cost ascribed to other factors of production. Even when optimistic assumptions are deemed the more plausible, a utility-maximizing evaluation may still give more emphasis to pessimism.