EC 230: Cost-Benefit Analysis Donna Ramirez Harrington COURSE SYLLABUS Class Hours

Fall 2010
EC 230: Cost-Benefit Analysis
Department of Economics, University of Vermont
Donna Ramirez Harrington
([email protected])
COURSE SYLLABUS
Class Hours
Office Hours
Prerequisites
9:35-10:25 am MWF
1:00 - 2:00 pm MW or by appointment
EC 170, EC 171 and EC 172
Location Lafayette 308
Location 233 Old Mill
Instruction Materials
Required Textbook
(BGVW) Boardman, A.E., D.H. Greenberg, A.R. Vinning, and D.L. Weimer, (2006) ―Cost -Benefit
Analysis‖, Prentice Hall.
Additional References (on Course Reserve)
(PAM) Pearce, David, Giles Atkinson, Susana Mourato, 2006, Cost Benefit Analysis and the
Environment: Recent Developments, OECD Publishing.
(MC) Mitchell, Robert, and Richard Carson, 1989, Using Surveys to Value Public Goods:
Contingent Valuation Method, Resources for the Future Press, Washington D.C.
Other References (in the Bailey-Howe Library stacks)
Pearce, David, 2006 Environment Valuation in Developed Countries Case Studies, Cheltenham UK:
Edward Elgar.
Pearce, David, Corin Pearce, and Charles Palmer, 2002, Valuing the Environment in Developing
Countries: Case Studies, Cheltenham UK: Edward Elgar.
Lomborg, Bjorn. 2006, ―Global Crises, Global Solutions‖, Cambridge University Press.
Journal Articles
(see list on pages 5-6 of syllabus)
Objectives
 To provide students with the microeconomic principles and conceptual foundation of costbenefit analysis (CBA) in the context of public finance
 To enhance analytic skills by using case studies that apply cost benefit analysis in illustrating
concepts and issues related to CBA
 To enhance quantitative skills by applying established estimation techniques for measuring
benefits from environmental and natural resource protection: demand curve estimation, hedonic
price method, and travel cost method, using actual data.
Grading and Course Requirements
Midterm (In class)
Oct 27 (W)
This is an in class exam and will cover all materials discussed up to Oct 25(M)
20%
Assignments
TBA
15%
This will involve some quantitative and essay assignments pre- and post-midterm. It
will cover chapters in the textbook and assigned journal articles and other readings.
Deadlines will be announced in class.
Travel Cost and Homework TBA
10%
Hedonic Price Homework
TBA
10%
These are post-midterm assignments and each will involve multi-step computations.
To help students implement each approach, lab sessions will be conducted using
Excel. If you miss the lab sessions, you would have to figure out the approach
yourself. The date of the lab session will be announced in class and each student is
required to bring a laptop to each lab session.
Summary Reports (10)
TBA
15%
Each summary report is to be written for any of the articles specified in the list on
pages 5-6 marked with a *. Each is due on the day the paper will be discussed in class
(by me or an assigned reporter). Any summary report submitted after a paper has
been discussed in class will not be accepted, even if you missed that class. Use only
the template attached-strictly one page, typewritten, min of 11 font. You can submit
a summary report for a paper for which you were assigned to be an oral reporter or a
discussant (see more on this below).
Class Participation
TBA
10%
This is based on (1) oral reports on an assigned journal article, (2) discussion of two
articles and (3) participation in other class discussions. As an oral presenter, you are
expected to prepare a powerpont presentation that summarizes the article, relate it to
topics discussed in class, and provide a commentary and other critique of the paper.
As a discussant, you are required to submit to me on the day of the discussion at
least 4 questions about the paper. Questions should include not just factual questions
but also questions that would provide critique to the paper’s approach and
conclusions to stimulate class discussions. Papers for oral presenters and discussants
will be announced after Sep 13, the last day for adding courses. Other in-class
discussions would require your relevant participation in bringing up useful comments
and questions for further scrutiny of the subject matter.
Term Paper
Dec 8(W)
20%
The requirement is for you to demonstrate your knowledge, understanding and
ability to critically integrate issues in cost benefit analysis in the context of
environmental or other regulatory issues. It can be on any topic you choose. See
attached detailed guidelines for the term paper: This is due in class in person on the
last day of class, December 8 (W). No extensions. 5-minute oral presentations is also
required (see Outline and Schedule)
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Tentative Outline and Schedule
This is a tentative outline. Topics that require a laptop are indicated (WITH LAB).
I.
Introduction
Aug 30(M)-Sep 1(W)
(Musgrave 1969, BGVW Ch 1 & 2; Fullerton &Stavins 1998; Arrow et al. 1996)
II.
Microeconomic Foundations
a. Efficiency. Producer Surplus (PS), Consumer Surplus (CS)
(BGVW, Ch 3)
b. Compensating Variation (CV), Equivalent Variation (EV)
(BGVW, Ch 3App; PAM 2006, Ch 11)
c. Willingness to pay (WTP), Willingness to Accept (WTA)
(Shogren et al 1994)
III.
Sep 10(F)-Sep 13(M)
Sep 15(W)
Sep 17(F)-Sep 20(M)
Sep 22(W)
Sep 24(F)
Sep 24(F)/Sep 27(M)
Valuation in Secondary Markets
(BGVW Ch 5)
a. Efficient Secondary Markets
b. Distorted Secondary Markets
c. Multiplier Effects in Secondary Markets
(Siegfried and Zimbalist 2000; Crompton 1995)
V.
Sep 6(M)-Sep 8(W)
Valuation in Primary Markets
(BGVW Ch 4)
a. Valuing Benefits in Efficient Primary Markets
b. Valuing Benefits in Distorted Primary Markets
i. Negative Externalities
ii. Positive externalities
iii. Public Goods
iv. Asymmetric Information
v. Monopoly
c. Valuing Costs in Efficient Primary Markets
i. Negligible Price Effects
ii. Noticeable Price Effects
d. Valuing Costs Distorted Primary Markets
i. Negligible Price Effects
ii. Noticeable Price Effects
e. Government Revenues
IV.
Sep 3(F)
Sep 27 (M)
Sep 29 (W)
Oct 1(F)
Issues in Cost-Benefit Analysis
a. Overview
(Prest and Turvey 1965)
b. Discounting (WITH LAB)
(BGVW Ch 6)
Oct 4(M)
Oct 4(M)
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c. Choice of Discount Rate
Oct 6(W)-Oct 8(F)
(BGVW Ch 10; Varian 2006; Dasgupta, 2006)
d. Uncertainty
Oct 11(M)-Oct 15(F)
(BGVW Ch 7; Mendelsohn 2008; Sterner and Persson 2008; John Weyent 2008; Dietz and
Stern 2008; Mendeslohn et al 2008; Dietz and Stern 2009)
e. Existence Value
Oct 18(M)-Oct 20(W)
(BGVW Ch 9; Nelson & Rosenthal 1992; Kopp 1992; Quiggin 1993)
f. Value of Statistical Life
Oct 22(F)-Oct 25(M)
(BGVW Ch 15; PAM 2006, Ch 14; Mrozek and Taylor 2001; Krupnick 2002; Robinson,
2007)
MIDTERM EXAM – OCT 27 (W)
VI.
Valuation Techniques
a. Direct Estimation of Demand Curves
Oct 29(F)-Nov 1(M)
(BGVW, Ch 12 and Ch 12App)
b. Use of Surveys Contingent Valuation Method
Nov 1(M)-Nov 5(F)
(BGVW, Ch 14; PAM2006 Ch 2, 11, 8; Mitchell and Carson, 1989 Ch 1, 7, 11 & 12;
Portney 1994; Diamond & Hausman 1994; Hanemann 1994, Champ et al 2009; Whittington
2002)
c. Indirect Methods
(BGVW, Ch 13)
i. Market Analogy Method , Trade-off Method,
Nov 8(M)
Intermediate Good Method, Asset Valuation Method,
Defensive Expenditure Method
ii. Hedonic Pricing Method (WITH LAB)
Nov10(W)-Nov 15(M)
(plus Ridker and Henning 1967)
iii. Travel Cost Method (WITH LAB)
Nov17(W)-Nov 29(M)
(plus Coupal et al 2001)
THANKSGIVING BREAK – NOV 22(M) - NOV 26(F)
5-MINUTE PRESENTATION OF PAPER - DEC 1(W) – DEC 3(F)
VII.
Real World Use of CBA
Dec 6(M)- Dec 8(W)
a. Application: Economics of the Clean Air Act
(Portney 1990)
b. How well does US government do CBA?
(Hahn and Dudley 2008)
c. Has Economic Analysis Improved Regulatory Decisions
(Hahn and Tetlock 2008)
d. Critique of CBA
(Kelman 1981)
e. Alternatives to CBA
(Viscusi 1996)
LAST DAY OF CLASS: DEC 8, W – SUBMIT TERM PAPER
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Journal Articles
The articles are listed in the order at which they will be discussed in class. These are on the course’s
Blackboard or on e-reserve. The articles with * are the ones you can write a summary report on.
David Fullerton and Robert Stavins 1998 How Economists See the Environment Nature, Vol 395,
pp 433-434.
Kenneth Arrow, Maureen Cropper, George Eads, Robert Hahn, Lester lave, Roger Noll, Paul
Portney, Milton Russell Richard Schmalensee, Kerry Smith, Robert Stavins, 1996 Is there a role
for cost-benefit analysis in environmental, health and safety regulation? Science Vol 272, No 5259,
pp 221-222
Richard A. Musgrave Cost-Benefit Analysis and the Theory of Public Finance Journal of Economic
Literature, Vol. 7, No. 3 (Sep., 1969), pp. 797-806
Robert Stavins, ―Environmental Economics‖, NBER Working Paper 13574
* Jason F. Shogren, Seung Y. Shin, Dermot J. Hayes, James B. Kliebenstein, ―Resolving
Differences in Willingness to Pay and Willingness to Accept,‖ The American Economic Review,
84:1 Mar., 1994, 255-270.
* John Siegfried, Andrew Zimbalist, ―The Economics of Sports Facilities and Their Communities,‖
The Journal of Economic Perspectives, Vol. 14, No. 3 (Summer, 2000), pp. 95-114.
* John L. Crompton, Economic Impact Analysis of Sports Facilities and Events: Eleven Sources of
Misapplication, Journal of Sports Management Vol 9: 14-35, 1995
A. R. Prest, R. Turvey, ―Cost-Benefit Analysis: A Survey,” The Economic Journal, Vol. 75, No. 300
Dec., 1965), pp. 683-735. [ This may be a good starting point for deciding on your term paper topic]
* Robert Mendelsohn, 2008, Is the Stern Review an Economic Analysis,? Review of Environmental
Economics and Policy, Vol 2, No. 1, pp 45-60.
* Thomas Sterner and Martin Persson, 2008 An Even Sterner review: Introducing relative prices
into the Discounting Debate, Review of Environmental Economics and Policy, Vol 2, No. 1, pp 61-76
* John Weyent, 2008, A Critique of the Stern review’s Mitigation Cost Analysis and Integrated
Assessment Review of Environmental Economics and Policy, Vol 2, No. 1, pp 77-93.
* Simon Dietz, and Nicholas Stern, 2008, Why Economic Analysis Supports Strong Action on
Climate Change: A Response to Stern reviews Critiques, Review of Environmental Economics and
Policy, Vol 2, No. 1, 94-113.
* Robert Mendelsohn, Thomas Sterner, U. Martin Persson, and John P. Weyant, Comments on
Simon Dietz and Nicholas Stern's Why Economic Analysis Supports Strong Action on Climate
Change: A Response to the Stern Review's Critics, Review of Environmental Economics and Policy
2008 2: 309-313
* Simon Dietz and Nicholas Stern, Note—On the Timing of Greenhouse Gas Emissions
Reductions: A Final Rejoinder to the Symposium on "The Economics of Climate Change: The
Stern Review and its Critics" Review of Environmental Economics and Policy 2009 3: 138-140
* Paul Portney, 1998 ―The applicability of cost-benefit analysis to climate change‖ In W.D
Nordhaus (ed), Economics and Policy Issues in Climate Change. Resources for the Future, Washington
D.C..
* Raymond J. Kopp, ―Why Existence Value Should Be Used in Cost-Benefit Analysis,‖ Journal of
Policy Analysis and Management, Vol. 11, No. 1 (Winter, 1992), pp. 123-130.
* Rosenthal, D.H. and R. H. Nelson, ―Why Existence Value Should Not Be Used in Cost-Benefit
Analysis,‖ Journal of Policy Analysis and Management, Vol. 11, No. 1 Winter, 1992, pp. 123-130.
* John Quiggin, ―Existence Value and Benefit-Cost Analysis: A Third View,‖ Journal of Policy
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Analysis and Management, Vol. 12, No. 1 (Winter, 1993), pp. 195-199.
* J.R. Mrozek and L.O. Taylor, 2002. ―What determines the value of life? A meta-analysis,‖ Journal of
Policy Analysis and Management 21 2 (2002), pp. 253–270.
* Alan Krupnick ― Commentary on:What Determines the Value of Life?:A Meta-Analysis,” Journal of Policy
Analysis and Management, Vol. 21, No. 2, 275–282 (2002).
* Lisa A. Robinson, ―How US Government Agencies Value Mortality Risk Reductions,‖ Review of
Environmental Economics and Policy 2007 1(2):283-299.
* Paul R. Portney, ―The Contingent Valuation Debate: Why Economists Should Care,‖ The Journal of
Economic Perspectives, Vol. 8, No. 4 (Autumn, 1994), pp. 3-17.
* Peter A. Diamond, Jerry A. Hausman, ―Contingent Valuation: Is Some Number better than No
Number?,‖ The Journal of Economic Perspectives, Vol. 8, No. 4 (Autumn, 1994), pp. 45-64.
* Michael, Hanemann, 1994, Valuing the Environment through Contingent Valuation, The Journal of
Economic Perspectives, Vol 8, No. 4, pp 19-43.
* Patricia A. Champ, Rebecca Moore, and Richard C. Bishop, , A Comparison of Approaches to
Mitigate Hypothetical Bias Agricultural and Resource Economics Review 38/2 (October 2009) 166–180
* Dale Whittington, Improving the Performance of Contingent Valuation Studies in Developing
Countries Environmental and Resource Economics Jun 20-2 22:1-2, p323
* Ridker, Ronald G. and Henning, John. A. 1967. ―The Determinants of Residential Property Values
with Specific Reference to Air Pollution.‖ The Review of Economics and Statistics 49 (2): 246-257.
* Coupal, Roger H, Bastian, Chris, May, Juliet, Taylor, David T, ―Economic benefits of
snowmobiling to Wyoming residents: A travel cost approach with market segmentation,‖ The
Journal of Leisure Research, Fourth Quarter 2001.
* Paul R. Portney Economics and the Clean Air Act The Journal of Economic Perspectives, Vol. 4, No. 4
(Autumn, 1990), pp. 173-181
* Hahn, Robert W. and Dudley, Patrick M., How Well Does the Government Do Cost-Benefit
Analysis?(January 2004). AEI-Brookings Joint Center Working Paper No. 04-01. Available at SSRN:
http://ssrn.com/abstract=495462 or DOI: 10.2139/ssrn.495462
* Robert W Hahn, Paul C Tetlock. Has Economic Analysis Improved Regulatory Decisions? The
Journal of Economic Perspectives. Nashville: Winter 2008. Vol. 22, Iss. 1; p. 67
* Steven Kelman Cost-benefit analysis; an ethical critique AEI journal on government and society;pp. 3340, 1981.
* W.Kip. Viscusi 1996, Regulating the regulators, The University of Chicago Law Review, Vol 63, No. 4,
pp 1423-1461
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Class Policies
My class policies are consistent with UVM policies which can be found on the following websites:
Code of Student Rights and Responsibilities
http://www.uvm.edu/~uvmppg/ppg/student/studentcode.pdf
Code of Academic Integrity
http://www.uvm.edu/~uvmppg/ppg/student/acadintegrity.pdf
Specific class policies are below:
1.
Attendance
I will not check attendance. Whatever you miss when you are absent, come late, leave early,
and register late is also your responsibility. Late assignments will not be accepted under any
circumstances. Absences during due dates for assignments and exams are excused only for
personal medical situations and family emergencies. University policy specifies that ―In the
event of illness requiring hospitalization or extended absence from classes because of a
medical condition, with permission from the student, a designated member of the Primary
Care/Women’s Health staff will notify the student's Dean's Office who will then be in touch
with the student’s faculty.‖ Please make sure to contact the CAS Office of Student Affairs if
you get hospitalized. I reserve the final authority to excuse other types of absences, and final
authority on deciding on missed assignments and exams.
2.
Assignments
All assignments are individual assignments. It is your responsibility to be aware of the due
dates for all assignments which will be announced in class. Assignments are to be submitted
at the beginning of the class on the day they are due, unless otherwise noted.
3.
Exams
There will be one midterm: Wednesday, October 27. If you have an excused absence during
midterm is excused, you would need to schedule with me a make-up exam as soon as
possible. You need to take the make-up exam within a week of your return. This exam will
be different from the original exam.
4.
Office Hours and Email
Office hours are designed to help students with difficult concepts and challenging
quantitative exercises. Office hours are not designed for personal tutorial sessions for
students who miss classes, come late or leave early. I do not make a habit of explaining
exams, lectures, assignments by email. If you need something clarified, come to my office
hours or you can speak with me before or after the class.
5.
Special Considerations
I will strictly follow University of Vermont policies regarding student athletes, special
religious events and learning disabilities. Please be aware that there are deadlines for
informing me of your special needs (exams to be taken at ACCESS etc, varsity events, etc).
Missing the deadline would mean you will not be given any special considerations.
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Guidelines / Tips for Term Paper
1. You may choose any topic that you are interested in but it is subject to my approval. I
suggest finalizing your topic by midterm, around third week of October.
2. There are various types of papers you can write. It may be any (but not limited to) or a
combination of the ff:
a. TYPE A- a critical and comprehensive review of literature on a particular issue on
cost benefit analysis-methodological, conceptual
b. TYPE B- a quantitative paper (but you need to get your own data) that is backed up
by theory and has a good discussion and policy implications
c. TYPE C -a presentation of a theoretical and methodological framework on how to
conduct a cost-benefit analysis for a particular regulatory /environmental issue
3. Whatever the type of paper you want to write, the paper has to have the following
components
a. An introduction that has
i. A clear, concise, well-phrased and answerable economic research question
ii. Motivation for the research
b. A good coherent and thematic review of pertinent literature
i. It must be thematic and not an enumeration of studies, and must be
reviewed according to the components or aspects relevant to your research
question
ii. It must be able to relate the similarities across papers and point out the
relevance and usefulness of each paper to your research question
iii. It must also identify the gaps in the literature to be able to provide a reason
for the relevance of your research.
c. A thorough and discussion and analysis
i. If it will be TYPE A, this would be a critical analysis or critique of the
conceptual foundation, microeconomic theory, method/approach. The
critique has to be substantial, multi-faceted and economic (not political or
ethical) in nature.
ii. If you want to write a TYPE B, it involves extra sections: data description
and sources, variable description, description of econometric method and
econometric issues, presentation of results, before you can present your
discussion and analysis. The quantitative results must be statistical or
econometric and must go beyond descriptive statistics. The discussion will
be judged according to accuracy and relevance to research question.
iii. If you want to write a TYPE C, the meat of your paper should contain a
discussion of the theoretical basis for CBA (discussion of primary and
secondary markets and the welfare measures in each), a discussion of the
appropriate method, and a discussion of what data you would need to
conduct the analysis. All these sections need to be backed by a thorough
literature review to support the theoretical and methodological framework
you choose.
d. A strong and concise conclusions and some discussion of directions for future
research
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Template for Summary Reports
Complete Paper Citation: (Author/s, year, article title, journal name, volume no., issue no., pages).
Research Question(s)
Contributions to the Literature/Relevance
Summary of Method/Approach for Analysis/Exposition
Summary of Results
Conclusions
Gaps / Critique of the Paper / Directions for Future Research
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