CBA lecture 1__three examples__2015

CBA lecture 1__three examples__2015 - ECO5074S Cost Benefit...

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ECO5074S Cost Benefit Analysis Beatrice Conradie [email protected] or directly after the lecture
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“The benefit cost principle says we should install a guardrail on a dangerous stretch of mountain road if the dollar cost of doing so is less than the implicit dollar value of the injuries, deaths and property damage thus prevented. May critics respond that placing a dollar value on human life and suffering is morally illegitimate. ” Frank (2000), Journal of Legal Studies 29: 913
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“Although formal cost benefit analysis should not be viewed as either necessary or sufficient for designing sensible public policy, it can provide and exceptionally useful framework for consistently organising disparate information, and in this way, it can greatly improve the process and, hence, the outcome of policy analysis.” Arrow et.al. (1996) Science 272: 221 – 222
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EXAMPLE 1: STANDARD PROJECT CBA Randela, R. (2005). Cost-benefit analysis of a disease control programme with special reference to ticks and tick-borne diseases in the former Venda region. Development Southern Africa 22(4): 515-528
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Background Danger of East Coast Fever makes tick control of public interest “The control of ticks a private good with externality .. The control of ticks by an individual farmer also benefits other farmers by reducing the tick population and thereby the risk to other farmers of contracting a tick-borne disease” Benefits and costs other than tick control Surveillance of foot and mouth outbreaks Extension opportunity Market place Centres for disease transmission
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Which impacts should be considered? Fewer adult animals get sick Milk production Draught power Heavier carcass weights More calves survive More sales of calves
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Cost benefit ratio = (A – B)/C = (130,042 - 57,157)/ 96,360 = 0.756 A B C CORRECT CBA = incremental benefit (A-C) / cost of producing the benefit (B) =(130,042-96,360)/ 57,157 = 0.589
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Per herd Dip regularly (survey data) Do nothing ( extrapolated from Zambia ) Net benefit of dipping Herd size 329 326 Mortality 3% 4% Cows 39% 38% Value of milk / cow R526 R405 + R121 per cow Beef cattle sales 57 57 Carcass weight 241 234 + 7kg per animal sold Meat price R5 R5 Oxen capable of ploughing 24 18 + 6 oxen healthy enough to plough with Price for ploughing per ox R259 R259 Calves 61 53.375 +12,5% survive some of which are sold Price of a calf R1,036 R1,036
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Cost benefit ratio 96360
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What if mortality without dipping was 10% instead of 4%?
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Conclusion CBR = Incremental benefit / incremental cost Sort the physical impacts out first; carefully justify the magnitude of the impact Decide what should be in the sensitivity analysis Beware of just producing the number that you political bosses want
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EXAMPLE 2: CONTROVERSIAL CASE Elliot, G., Harris, G. (2001). A cost benefit analysis of landmine clearance in Mozambique. Development Southern Africa . 18(5): 625-633
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