CBA

Question 1

What does CBA stand for

Answer 1

Cost Benefit Analysis

Question 2

Defenition

Answer 2

• Tool to decide whether one outcome is better that another from society’s perspective based in economic value
• in policy processes - env taxes and defenses of rivers and coasts

Question 3

Describe the methodology, and the 6 steps

Answer 3

1. Project defenition
   - what is being analysed
   - whose welfare in being considered
   - time period
2. Identification of physical impacts of the project/policy
   - identify the resource allocation in physical magnitudes
3. Monetary valuation of inputs
   - all relevant effects are expressed in monetary values so they can be aggregated
   - to value impacts in terms of their marginal social cost or marginal social benefit
4. Discounting
   - discounting cost and benefits
   - concerning the monetary values into present value terms
   - sam time value of money
5. Applying Net Present Value test
   - to determine whether future costs outweigh the present benefits
6. Sensitivity analysis
   - uncertainties because of non-perfect foresights
   - re-calculate NPV when values of key-parameters are changed ex discount rate

Question 4

Describe NPV

Answer 4

NPV = net present value
- to determine wether future costs outweigh present benefits

NPV = sum(discounted gain) - sum(discounted losses)
if NPV < 0 there is no gain

Question 5

Problems with CBA

Answer 5

• ecosystem complexity
• Discounting and discounting rate - what rate and should it be done?
• Ethically challenging - should wildlife have monetary value
• many studies of low quality
• for env. consequences poorly designed

Question 6

Term: Utility

Answer 6

The value of a good it provides for the consumer

Question 7

Term: Hedonic pricing

Answer 7

The value of something based on peoples preferences (what they purchase)

Question 8

Term: Willingness-to-pay

Answer 8

in an economy based on monetary exchange, an individuals willingness to pay an amount of money tells what the amount is worth of the sacrifice of the other things that could have been purchased with money

Question 9

Term: Willingness-to-accept

Answer 9

In a valuation method called “contingent valuation where pretences from surveys are measured. WTA measures the acceptance to compensate for the benefit of the environment