Working Papers May 2016

New Working Paper Series

Welcome to the inaugural issue of SBCA's working paper series! 

We welcome papers submitted by SBCA members on topics in benefit-cost analysis for circulation as part of this working paper series. The Society shares these papers as a service to its members and the benefit-cost analysis community. The Society for Benefit-Cost Analysis does not edit the papers before sharing and inclusion of a working paper here does not constitute endorsement by the Society of any of its content.  

SBCA members interested in submitting their working papers for future issues may contact Erika Dowd, Executive Director, at sbcainfo@uw.edu

Determining the Proper Scope of Climate Change Benefits

Authors: W. Kip Viscusi (Vanderbilt University) and Ted Gayer (Brookings Institution)

Abstract: Although benefit assessment principles are well established for defined populations, there has been very little attention to how one defines the scope of the pertinent population for the assessment. Whose social welfare matters and whose benefits should be included in the assessment? Should there be any linkage between the benefits and the political jurisdiction whose citizens are paying for the policy? For U.S. regulatory policies, the norm has been to assess benefits to U.S. citizens. This article reviews the norms for the scope of benefit assessment based on executive orders and the laws governing risk and environmental regulations. In 2010, the Obama Administration’s Interagency Working Group on Social Cost of Carbon developed estimates of the benefits associated with reductions in carbon dioxide emissions, and in doing so, adopted a worldwide benefits approach. This article reviews specific examples of such practices for energy efficiency regulations. We also contrast the U.S. approach to that of other developed countries. Finally, we discuss how the level and likelihood of reciprocity should be incorporated in global benefits within a benefit-cost framework, and the role of altruism in considering the proper scope of benefits.

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2446522

Developing Guidance for Regulatory Analysis: Challenges and Opportunities

Authors: Lisa A. Robinson (Harvard University Centers for Risk Analysis and Health Decision Science), Jennifer R. Baxter (Industrial Economics, Inc.), and James K. Hammitt (Harvard University Center for Risk Analysis and Toulouse School of Economics)

Abstract: Benefit-cost analysis is mandated for major Federal regulations and often conducted to support the development of other regulations and policies. However, few agencies provide comprehensive official guidance on its implementation. In this paper, we review the guidance available and discuss the advantages as well as the barriers associated with its creation. Drafting guidance appears worthwhile, given its potential to promote higher-quality and more widespread analysis and encourage evidence-based decision-making, assuming it is carefully developed and periodically updated to reflect the best available research. Regulatory analysis often entails exercising good judgment to address data gaps and inconsistencies; guidance can aid analysts in making such judgments by identifying appropriate methods and criteria for evaluating relevant research. 

Link: http://www.regulatory-analysis.com/robinson-baxter-hammitt-RIA-guidance-working-paper.pdf​

The Evaluation of Research Infrastructures: A Cost-Benefit Analysis Framework

Authors: Massimo Florio (Department of Economics, Management and Quantitative Methods, University of Milan), Emanuela Sirtori (CSIL Centre for Industrial Studies, Milan)

Abstract: When decision-makers consider pure and applied research infrastructures, such as genomics platforms, astronomic observatories, nanoelectronic laboratories, oceanographic vessels, or particle accelerator facilities (just to mention some examples) are faced by this question: what is the net social benefit of these costly scientific ventures and of the public goods they produce? The answer is often given qualitatively, or even rhetorically, by scientists and other stakeholders in these projects. But can we go beyond anecdotal evidence, narratives and ad hoc studies and try a structured ex-ante and ex-post evaluation of the socio-economic impact of research infrastructures? This paper explores some of the methodological issues involved in a CBA framework for capital-intensive scientific projects. The paper proposes a conceptual model based on the estimation of quantities and shadow prices of cost aggregates, and of six main categories of economic benefits (pure value of discovery, knowledge outputs, technological spillovers, human capital formation, cultural effects and services to third parties). Empirical approaches are suggested for further applied research, including the use of probability distribution functions to generate expected net present values of research infrastructures by Monte Carlo methods.

Link: https://ideas.repec.org/p/mil/wpdepa/2014-10.html

Learning from Experience: Retrospective Review of Regulations in 2014

Author: Sofie E. Miller (GW Regulatory Studies Center)

Abstract: Through a series of Executive Orders, President Obama has encouraged federal regulatory agencies to review existing regulations “that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.” Evaluating whether the intended outcomes of regulations are met ex post can be challenging, so multiple government guidelines instruct agencies to incorporate retrospective review plans into their proposals during the rulemaking process. To support this effort, the George Washington University Regulatory Studies Center examined significant regulations proposed in 2014 to assess whether they included plans for retrospective review, and provided recommendations for how best to do so. This paper finds that, despite these guidelines, agencies are not planning prospectively for ex post analysis of their rules and provides agencies with three recommendations to facilitate transparency, public accountability, and measurement of their rules’ success.

Link: https://regulatorystudies.columbian.gwu.edu/learning-experience-retrospective-review-regulations-2014

Recollection Bias and Its Underpinnings: Lessons from Terrorism-Risk Assessments

Author: W. Kip Viscusi (Vanderbilt University) and Richard J. Zeckhauser (Harvard University)

Abstract: Recollection bias is a phenomenon whereby people, after observing a highly unexpected event, hold current risk beliefs about a similar event that are no higher than their recollection of their prior beliefs. This article explores the phenomenon of recollection bias with respect to individuals’ perceptions of the risks of terrorism attacks. Over 60% of respondents in a national U.S. sample of over 900 adults believe that the risks of a future terrorist attack by either an airplane or in a public setting are no higher than they believed respectively before the 9/11 attack and the Boston Marathon bombing. Only one-fifth of respondents are free of any type of recollection bias. Recollection bias with respect to both events is negatively correlated with absolute levels of risk belief. Recollection bias — basically the belief that perceived risks have not increased — also dampens support for a variety of anti-terrorism measures, controlling for the level of risk beliefs and demographic factors.

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2692253

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Working Paper Series - Working Papers May 2016