Cost-benefit Analysts Research Articles

The SEC and Climate Risk

The time has never been better for the Securities and Exchange Commision (SEC) to regulate climate change disclosures; however, the agency has a poor track record in mandating climate and other specialized disclosures from public corporations. Its 2010 guidance on climate-related disclosures was sparsely enforced. Its 2012 conflict materials rule was partially invalidated by the courts, and in 2019 and 2020, the agency failed to include climate disclosures when modernizing rules and guidelines on corporate disclosures. These past failures were due to agency intertia, which was facilitated by a combination of a lack of political feasibility, strong business resistance to specialized disclosures (despite investor enthusiasm), and rising judicial hostility to the SEC. These past failures should not dictate agency approaches to climate disclosures moving forward. Regulating climate change is high on the agenda of the Biden Administration. Investors are demanding that public corporations be more transparent about climate-related risks. The SEC is starting to act, issuing a call for public input on climate-related disclosures and enhancing its focus on climate-related disclosure in public company filings.These political, investor, and agency shifts are primarily due to the rising awareness of the potential systemic nature of the risks of climate change to financial systems, both in the U.S. and internationally. This article assesses the policy feasibility of climate-related disclosure rules. It argues that past SEC failures can and should inform SEC rulemaking on climate change disclosures moving forward. Regulating climate disclosures benefits not only investors and capital markets, but also companies, due to the systemic nature of climate risk. This article argues that robust cost-benefit analysts and industry-specific, flexible but firm regulatory approaches will improve policy feasibility.

Cost–benefit analysis involving addictive goods: contingent valuation to estimate willingness‐to‐pay for smoking cessation

The valuation of changes in consumption of addictive goods resulting from policy interventions presents a challenge for cost-benefit analysts. Consumer surplus losses from reduced consumption of addictive goods that are measured relative to market demand schedules overestimate the social cost of cessation interventions. This article seeks to show that consumer surplus losses measured using a non-addicted demand schedule provide a better assessment of social cost. Specifically, (1) it develops an addiction model that permits an estimate of the smoker's compensating variation for the elimination of addiction; (2) it employs a contingent valuation survey of current smokers to estimate their willingness-to-pay (WTP) for a treatment that would eliminate addiction; (3) it uses the estimate of WTP from the survey to calculate the fraction of consumer surplus that should be viewed as consumer value; and (4) it provides an estimate of this fraction. The exercise suggests that, as a tentative first and rough rule-of-thumb, only about 75% of the loss of the conventionally measured consumer surplus should be counted as social cost for policies that reduce the consumption of cigarettes. Additional research to estimate this important rule-of-thumb is desirable to address the various caveats relevant to this study.

Comparison of Capital Costs per Route-Kilometre in Urban Rail

Because of the prominent position of urban rail in reducing urban transport-related problems, such as congestion and air pollution, insights into the costs of possible new urban rail projects is very relevant for those involved with cost estimations, policy makers, costbenefit analysts, and other target groups. Knowledge of the differences in costs per kilometre, including explanations of differences and their breakdowns is currently lacking in the literature. This paper aims to provide a first stage insight into how cost per kilometre varies across urban rail projects. The methodology applied is a simple cost comparison across projects where the data collected are comparable. We conclude that capital costs per routekilometre of urban rail vary highly between projects. Looking at European projects and excluding outliers, the total capital costs per route-kilometre (including stations and rolling stock) lie mainly between US$50-100 million (2002 prices). Including US projects, the range is US$50-150 million. The main reasons for the high variation in the route-kilometre costs are differences between projects as regards the ratio of underground to above-ground construction, ground conditions, station spacing, type of rolling stock, environmental and safety constraints and labour costs. We warn, however, that the observations used to reach the conclusions are too few to obtain results with statistical significance. Our results must therefore be seen as a first step towards collecting more data so that a more succinct statistical analysis can be conducted. Another conclusion is therefore that this area has future research potential.

Life cycle assessment of the waste hierarchy – A Danish case study on waste paper

The waste hierarchy is being widely discussed these days, not only by cost-benefit analysts, but a growing number of life cycle assessments (LCA) have also begun to question it. In this article, we investigate the handling of waste paper in Denmark and compare the present situation with scenarios of more waste being recycled, incinerated or consigned to landfill. The investigations are made in accordance with ISO 14040-43 and based on the newly launched methodology of consequential LCA and following the recent guidelines of the European Centre on Waste and Material Flows. The LCA concerns the Danish consumption of paper in 1999, totalling 1.2 million tons. The results of the investigation indicate that the waste hierarchy is reliable; from an environmental point of view recycling of paper is better than incineration and landfilling. For incineration, the reason for the advantage of landfilling mainly comes from the substitution of fossil fuels, when incinerators provide heat and electricity. For recycling, the advantage is related to the saved wood resources, which can be used for generating energy from wood, i.e., from renewable fuel which does not contribute to global warming.

Incommensurability and Monetary Valuation

At the very heart of environmental cost-benefit analysis (CBA) is the claim that benefits and costs can be expressed in terms of money and hence made comparable. In particular, CBA puts all benefits and costs on a cardinal, monetary scale: it assumes monetary commensurability. A significant literature in ethics and political philosophy has arisen which doubts this assumption, but has so far had little impact on the theory or practice of CBA. In light of this, the paper assesses the defense of monetary commensurability offered by cost-benefit analysts and the wider economics literature.

A multiple account framework for cost–benefit analysis

The paper presents a spreadsheet-based multiple account framework for cost–benefit analysis which incorporates all the usual concerns of cost–benefit analysts such as shadow-pricing to account for market failure, distribution of net benefits, sensitivity and risk analysis, cost of public funds, and environmental effects. The approach is generalizable to a wide range of projects and situations and offers a number of advantages to both analysts and decision-makers, including transparency, a check on internal consistency, and a detailed summary of project net benefits disaggregated by stakeholder group. Of particular importance is the ease with which this framework allows for a project to be evaluated from alternative decision-making perspectives and under alternative policy scenarios where the trade-offs among the project's stakeholders can readily be identified and quantified.

Preferences for Processes: The Process/Product Distinction and the Regulation of Consumer Choice

TABLE OF CONTENTS INTRODUCTION I. THE PROCESS/PRODUCT DISTINCTION A. International Trade and As Such 1. Process-Based Trade Measures Under GATT/WTO Jurisprudence 2. The Special Case of Product Labeling B. Genetic Engineering and Substantial Equivalence 1. Modern Genetic Engineering Processes 2. U.S. Regulation of Genetically Modified Food Products 3. The Looming Trade War with Europe C. Commercial Speech and Mere Consumer Concern 1. International Dairy Foods Ass'n v. Amestoy: Mandatory Disclosure of Process Information 2. Nike, Inc. v. Kasky: Voluntary Disclosure of Process Information II. THE REGULATION OF CONSUMER CHOICE A. Comprehending Preferences for Processes 1. The Instrumental Account (a) Sovereignty of Consumers (b) Sovereignty of Nations 2. The Expressive Account (a) The Utility of Process (b) The Market for Expression 3. The Ethical Account B. Process Preferences in Global Civil Society 1. The Inevitability of Regulation 2. The Heroic Consumer CONCLUSION PREFERENCES FOR PROCESSES: THE PROCESS/PRODUCT DISTINCTION AND THE REGULATION OF CONSUMER CHOICE This Article examines a conceptual distinction between product-related information (such as whether a consumer good threatens to harm its user) and process-related information (such as whether a good's production harmed workers, animals, or the environment) that has appeared in various guises within international trade law; domestic environmental, health, and safety regulation; and constitutional commercial speech jurisprudence. This process/product distinction tends to dismiss information concerning processes as unworthy of attention from consumers or regulators, at least so long as the processes at issue do not manifest themselves in the physical or compositional characteristics of resulting end products. Proponents have offered the process/product distinction as a useful device for determining when consumer product regulations are likely to have drifted beyond the satisfaction of significant consumer interest into areas of unjustified alarm, disguised protectionism, or excessive encroachment onto competing interests, such as the speech concerns of product manufacturers or the domestic sovereignty of foreign nations. As this Article shows, however, the process/product distinction proves far too thin and formalistic of a conceptual device, once one examines the full panoply of reasons why consumers might express preferences for processes. Thus, rather than dismissing process preferences as especially likely to be ill-informed or otherwise objectionable, this Article argues in favor of acknowledging and accommodating such preferences within theoretical frameworks for policy analysis. Indeed, in view of several growing phenomena--including the cultural and political significance attached to the consumption function, the effort by regulatory cost-benefit analysts to ground public policies on the values revealed by individuals acting in their roles as market actors, and the integration of global product markets without similarly expansive integration of the global regulatory system --this Article concludes that, in the future, process preferences may serve as indispensable outlets for public-regarding behavior. INTRODUCTION Shortly after the terrorist attacks of September 11, 2001, U.S. Commerce Secretary Don Evans was quoted as saying, People ask all the time, 'What can I do, what sacrifices can I make for my country?' His answer: Go back to the stores. (1) Although long present in political and popular discourse, (2) this conflation of patriotism with consumption, of civic life with market life, became unmistakably apparent in the wake of the World Trade Center and Pentagon disasters. Across the airwaves and in the newspapers, private consumer spending appeared as the primary, and at times the exclusive, avenue for citizen participation in the nation's effort to recover from 9/11. …

How to Make a Public Choice About the Value of a Statistical Life: The Case of Road Safety

Cost-benefit analysts involved in evaluating projects influencing the risk of death and injury have access to a wide group of studies that provide a large range of estimates of the value of a statistical life (VOSL). It is of course a difficult task to pick the right estimate. This paper discusses the potential avenues available to analysts looking for values of a statistical life and of injuries to be used in cost-benefit analyses of Quebec projects involving changes in road safety. Actually, the discussion is conducted in the context of Quebec, but most of it could easily apply to the rest of Canada. First, we discuss the relevance of looking for an original set of estimates involving a new study and the collection of new data. We present many arguments in favour of such a strategy. Second, if the time or the resources necessary to conduct a new study are not available, we offer an analytical framework that allows one to make a choice of estimates (or of a range of estimates) from existing studies. We conclude that a VOSL of 5 million dollars (CAN $, 2000) would be acceptable. Another contribution of this paper is to present, to our knowledge, the most up-to-date survey of studies on the value of a statistical life covering more than 85 papers.

Why is Cost‐Benefit Analysis so Controversial?

The cost-benefit principle says we should take those actions, and only those actions, whose benefits exceed their costs. For many, this principle's common-sensical ring makes it hard to imagine how anyone could disagree. Yet critics of cost-benefit analysis are both numerous and outspoken. Many of them argue that cost-benefit analysis is unacceptable as a matter of principle. I begin by noting why many find this argument largely unpersuasive. I then examine several conventions adopted by cost-benefit analysts that do appear to yield misleading prescriptions. Finally, I consider the possibility that the cost-benefit principle may itself suggest why we might not always want to employ cost-benefit analysis as the explicit rationale for our actions.

Foresight as a survival characteristic: When (if ever) does the long view pay?

Long-range R&D and capital investment projects are normally evaluated by means of a procedure (cost-benefit analysis) that involves a choice of time preference functions. Cost-benefit analysts and many economists typically assume that time preference is a behavioral fact of life and that the time preference function is essentially equivalent to a compound interest law. In practice, they tend to choose discount rates in the range of 3% to 8% per annum in real terms. Variability in projected cost-benefit ratios resulting from this uncertainty is commonly dealt with ad hoc, e.g., by simply presenting results for several different discount rates and letting the decisionmaker select among them. It is argued in this study that the basic discounting methodology is fundamentally flawed and can lead to significantly inferior social choices, i.e., choices that would be rejected by virtually any rational actor to whom the choice was fairly presented. A more general methodology is needed. Examples from several realms, including energy policy and environmental protection, are discussed to illustrate the thesis.

International specialist meetings

SIR, -I am sure many find international specialistmeetings' beneficial, even inspirational, but in thebrave new world of health economics I wonderwhat the cost-benefit analysts make of such eventsand what is the optimal frequency of attendinginternational meetings.Over £500 may be spent attending a conferenceof a few days' duration, while a full year's subscriptionto most learned journals costs about 10% ofthis. Let us assume that an international specialistmeeting covers the material of a full year's subscriptionto four specialist journals-a ratheroptimistic estimate by common experience. Thenwe may utilise the same resource in achieving atleast twice the educational benefit by spending themoney on specialist journals. During most of theyear there would seem to be at least one specialistmeeting a month that could legitimately beattended, but of course funds rarely permit this. Iam pleased that some assessment has been made ofthe efficacy of attending scientific conferences, butI fear that the financiers may better spend theirmoney in educating us in other ways.Perhaps with the new technology of communicationsand video conferencing we may be able tocontribute papers and attend meetings by proxy,thus saving the inconvenient and expensive travelarrangements, not to mention the exorbitantaccommodation fees that are levied.

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.

Advocacy through convenient definition of societal objectives. Cost-benefit analyses in health care.

In modern democracies, societal objectives are pluralistic, varied, and often mutually conflicting. Consequently, cost-benefit analysts have considerable scope for defining societal objectives in a manner most suitable for advocating their clients' programs. Three different therapies for a hypothetical disease are considered. Alternative definitions of societal objectives suitable for the advocacies of the different therapies are outlined. Some generalized principles of advocacy through convenient definition of societal objectives are identified.

Total Net Benefit and the Quantity of Life: A Query

When it is expected that different population levels will be associated with alternative land uses, cost—benefit analysts could adopt three treatments of benefit. (1) Only the benefit of population common to all land uses is considered. (2) The potential Pareto improvement criterion is adopted, requiring that gainers from any change can compensate losers. (3) Utility weights are used to interpret willingness-to-pay in terms of benefit. Despite the apparent feeling of economists that treatment (1) avoids difficult value judgements, all three treatments raise problems of ascribing preferences to the yet-unborn, and of estimating the total utility of life.