Appraising Policies, Programmes and Projects

This module covers:
Cost benefit Analysis Welfare and Well-being

• Introduction to the microeconomic foundations of CBA (partial equilibrium representation of social costs and benefits).
• Individual welfare functions
• Social welfare functions and wellbeing
• Marginal utility of income
• CBA and General Equilibrium
• Compensation criteria, Hicks-Kaldor, Scitovsky paradox
• Compensating and equivalent variations
• Cost-effectiveness / cost-utility
• Real individuals behaviour Vs the rational economic ideal the insights offered by behavioural economics
• Valuation of Social Costs and Benefits
• Opportunity cost and market prices
• Revealed Preference and close markets
• Stated preferences (willingness to pay and willingness to accept)
• Subjective well-being
• Whole life costing and sustainability
• Valuation of human health and life (quality, avoidance of fatality)
• Ecosystems and environmental valuation
• Option value
• Relative pricing
• Exclusion of transfer payments
• Valuation of parts and the whole of systems

This module covers:
Multi-criteria Analysis

• Unquantifiable effects and the role of MCA
• Avoiding biased design in MCA
• Applying MCA to add transparency
• Stakeholder engagement and MCA
• Option identification and MCA
• Deriving relative values from MCA and supplementing CBA

This module covers:
Risk, Uncertainty and Optimism Bias

• Different types of endogenous and exogenous risk.
• uncertainty
• systematic risk
• optimism bias
• catastrophe risk
• Identifying and Accounting for risk and uncertainty
• Optimism Bias adjustments
• Valuing risks
• Certainty equivalent risks
• Appraisal risks which are systematically linked to economic performance
• Long term certainty equivalence declining discounts linked to uncertainty
• Monte-Carlo analysis

Scenarios
Use of scenarios testing for robustness and switching values to explore best and worst case and to test robustness

Inter-temporal Issues and Discounting

• Individual time preference and Net Present Value
• Market discount rate
  • Financial economics literature
  • equity premium
• Cost of capital
• Social time preference and the Ramsey formula,
  • pure time preference,
  • increasing wealth effects and the marginal utility of consumption,
  • endogenous (catastrophe) risk
• Treatment of risk in CBA and social discounting (i.e. explicit identification and inclusion of endogenous risk costs and the exclusion of endogenous risk from the discount rate)
• The Green Book discount rate and appraisal
• Derivation of the 3.5% social time preference rate
• Discounting the in the long term,
• "Apparently Irrational" choices short/long term (e.g. Obesity the Challenge of Affluence) Hyperbolic discounting.
• Uncertainty and certainty equivalents, the value of certainty.
• Derivation of the declining long-term discount rate
• Inter-generational equity
• International equity
• Sustainability

Distributional Analysis and Adjustment

• Theory of distributional adjustment (arguments for / against)
• Calculation of adjustment factors
• How and when to apply adjustment factors