Indirect Welfare Effects Of Price Changes And Cost Benefit Analysis

What is the effect of a new infrastructure on the well-being of a local community? Is a tax reform desirable? Does the privatization of a telecommunication provider increase social welfare? To answer these questions governments and their policy advisors should have in mind an operative definition of social welfare, and cannot rely on simple official statistics, such as GDP. The price we observe are often misleading as welfare signals, and costs and benefits for the society should be based on ‘shadow prices’, revealing the social opportunity costs of goods and of changes of the world. This book explains how to apply these welfare economics ideas to the real world. After a theoretical discussion of the concept of social welfare, a critical analysis of the traditional doctrine of welfare economics embodied in the Two Fundamental Theorems, and a presentation of social cost-benefit analysis, the book introduce the readers to an applied framework. This includes the empirical estimation of shadow prices of goods, of the social cost of labour and capital, the assessment of risk. This book also includes the state of the art of international experience with CBA, including ex-post evaluation of major projects, economic rates of return in different sectors, and a case study on privatisation, is presented. This book offers a unique and original blend of theory, empirics and experience. The theoretical discussion clarifies why shadow prices are not virtual market equilibrium prices, as they arise as the solution of a planning problem, often with governments and economic agents constrained in their information and powers. The empirical chapters show how to compute proxies of the shadow prices in simple ways. The experience chapters draw from first hand research, gained by the Author and his collaborators over many years of advisory work for the European Commission and other international and national institutions.

This book shows that cost-benefit analysis does not need to be an esoteric and arcane subject. In a step-by-step presentation, with little more than introductory microeconomics, some clear reasoning, and many examples, Professor Ginés De Rus presents the essentials of applied welfare economics concepts. Any undergraduate student or practitioner who wants to start his training in CBA should consider reading this text.

This Element on cost-benefit analysis provides a summary of recent theoretical and empirical developments and summarizes state-of-the-art stated-preference and revealed-preference valuation methods. The Element discusses how to assess small (or marginal) as well as large (or non-marginal) projects that have a significant impact on prices and/or other economic variables. It also discusses distortions like taxes, market power, and sticky prices. In addition, risk/uncertainty is considered. A novel feature is the elaboration on flexible evaluation rules for reasonably small projects. Conventional point-estimates of projects should be used with care, because they typically give biased results.

The book presents the theory of cost-benefit analysis and applies this theory to contemporary problems of development economics. It is distinctive in that it combines an introduction to welfare economics and project appraisal with a discussion of current issues in development economics such as structural adjustment policies, commodity stabilization programs and environmental issues. The book assumes a basic economic understanding and should be a useful text and also of interest to public policy administrators.

Choice is the name of the game. Government sets the size of the public budget and decides which public projects it will invest in and which transfers and regulations it will implement. To do this systematically the government must have a procedure that displays the consequences of the alternatives. This book is an exposition of benefit-cost analysis (BCA), an analytic framework for organizing thoughts, listing the pros and cons of alternatives, and determining values for all relevant factors so that the alternatives can be ranked. A major question illuminated by this text is whether the results of such an analysis can instruct government--in the sense of telling it what it must do to avoid being labelled stupid, corrupt, irrational, and/or inefficient. How and when, we will ask, can the benefit-cost analyst label a particular governmental investment, policy, or regulation as political (in the pejorative sense) as opposed to economic (in the laudatory sense of being economically justified)? This book will argue that BCA is much like a consumer information system. Consumer information neither tells consumers what to do nor tells them what they should want. However, it does tell them which products will perform in selected ways and at what costs. And this information, together with the independently arrived at wants, helps the consumer make intelligent choices.

This book is an advanced text in applied welfare economics and its application to environmental economics. The author goes far beyond the existing literature on the valuation of environmental benefits, deriving sets of cost-benefit rules which can be used to assess private and public sector projects which affect the environment. He explains how valuation studies can be augmented so as to yield the information necessary for decision-making, showing how externalities, taxes, unemployment, risk, irreversibilities, flow and stock pollutants, discounting, and intergenerational distribution should be treated in social cost-benefit analysis. Drawing on a number of empirical illustrations, this book will be of interest not only to those taking advanced courses in environmental economics, welfare economics, and public economics, but also as a reference for those undertaking project evaluations in government and business.

This paper reviews theory and evidence of the welfare effects of inflation from a costbenefit perspective. Basic models and selected empirical results are discussed. Historically, in assessing the welfare effects of inflation, the distortion of money demand played a prominent role. More recently, interactions of inflation and taxation came into focus. Growth effects of inflation as well as welfare effects of unanticipated inflation and of inflation uncertainty are also addressed. To assess the policy question whether inflation should be reduced or eliminated, the costs of disinflation play a role. Finally, the trade-off between the benefits of reducing inflation and the costs of disinflation is discussed and an overall assessment of the net welfare effects of achieving price stability is provided.