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COST-BENEFIT ANALYSIS
5 module, 2002/2003
Professor: Judith
Shapiro
This is a public
economics field course, distinguished by its selection of topics
of an applied character. The primary emphasis will be on topics
in optimizing (sub-optimizing) expenditure, emphasizing project
appraisal and cost-benefit analysis.
Marks: 15% for written assignments and problems, 20% for contributions
in class and seminars, and 60% for the final examination. The
exam will have a choice of three out of seven questions. Your
own notes may be used.
Basic Reading: Robert J. Brent, Applied Cost-Benefit Analysis,
with reading from Cost-Benefit Analysis, second edition, edited
by Richard Layard and Stephen Glaister,
Week
1: Reviewing what CBA is. Underlying assumptions. What it
can (and cannot) do. Major critiques.
Does CBA assume too much about what government should do? Reviewing
the reasons for government intervention. (Additional reading:
Dennis Mueller, Public Choice II, chapters 16 and 17.)
Basic Reading: Chapter I of Brent (also see chapters 2 and 3,
and Introduction to Layard and Glaister)
Using CBA in practice: examples and issues
International air traffic control:
Guidelines for the economic appraisal of EATCHIP projects --
the effective use of cost- benefit studies: http://www.iata.org/cba/.
Guide to CBA for the National Institutes of Health http://irm.cit.nih.gov/itmra/cbaguide.html
Week
2: What is the "correct" discount rate ?
Basic
reading: Chapter 10 of Brent
Additional
recommended reading: Stiglitz in Layard and Glaister "The
rate of discount for benefit-cost analysis and the theory of
the second best', pp, 116 -159
Week
3 and Week 4: Shadow prices, theory and practice: measurement
of intangibles, including life, time
Basic
reading: Brent, chapters 4 and 8,
Additional
reading: Dreze and Sen, plus any of chapters 7-9, 10, 11. 17
in Layard and Glaister.
Week 5 Risk and uncertainty
Basic
reading: Brent, Chapter 7
Additional
reading: Arrow and Lind, "Uncertainty and the evaluation
of public investment decisions", pp. 160-178 in Layard
and Glaister
Week
6: Problems of Income Distribution, Winners and Losers
Basic
Reading: Brent, Chapter 10
Additional
reading: Layard and Walters, "Allowing for Income Distribution,"
pp. 179 -198 in Layard and Glaister.
Week
7: Revision, application to contemporary Russian issues. Assessing
the successes and failures of CBA.
Basic
Reading: Little and Mirrlees, "The costs and benefits of
analysis," pp. 199 -231 in Layard and Glaister
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