Ramirez HarringtonEC230B

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EC 230: Cost-Benefit AnalysisSpring 2010

Department of EconomicsUniversity of Vermont

Donna Ramirez Harrington

([email protected])

COURSE SYLLABUS

Class Hours 1:00-2:15 pm TR Location 455 WatermanOffice Hours 2:30 am-3:30 pm TR or by appointment Location 233 Old MillPrerequisites EC170 , EC171 and EC 172

Required Textbook

Boardman, A.E., D.H. Greenberg, A.R. Vinning, and D.L. Weimer, (2006) Cost -Benefit Analysis,Prentice Hall.

Additional References (on Course Reserve):

Pearce, David, Giles Atkinson, Susana Mourato, 2006, Cost Benefit Analysis and the Environment: RecentDevelopments, OECD Publishing.

Mitchell, Robert, and Richard Carson, 1989, Using Surveys to Value Public Goods: Contingent ValuationMethod, Resources for the Future Press, Washington D.C.

Pearce, David, 2006 Environment Valuation in Developed Countries Case Studies, Cheltenham UK: EdwardElgar.

Pearce, David, Corin Pearce, and Charles Palmer, 2002, Valuing the Environment in Developing Countries:Case Studies, Cheltenham UK: Edward Elgar.Lomborg, Bjorn. 2006, Global Crises, Global Solutions, Cambridge University Press.

List of Other Journal Articles (see last page of syllabus)

Objectives

To increase student understanding of the trade-offs associated with various public projects by identifyingand analyzing costs and benefits of providing these goods and services

To provide students with the microeconomic principles and conceptual foundation of cost-benefitanalysis (CBA) in the context of public finance

To enhance analytic skills by using case studies that apply cost benefit analysis in illustrating concepts andissues related to CBA

To enhance quantitative skills by applying established estimation techniques for measuring benefits fromenvironmental and natural resource protection: demand curve estimation, hedonic price method, andtravel cost method, using actual data.

To develop and enhance research skills by conducting a critical literature review on a specific issue oncost benefit analysis


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Grading

Midterm (In class) (March 4-Thur) 25%This will cover material discussed up to March 2

Term Paper (May 4-Tues) 25%No extensions. Grade for your term paper grades on drafts, oral reporting ofyour paper and final draft

Final (Take-home) (May 7-Fri) 25%This is a comprehensive final exam. This is due strictly at 5:00 pm in personFinal exam questions will be distributed on the last day of class, May 4.

Assignments, Oral reports, and Class Participation (TBA) 25%Oral reports are based on an assigned journal article-See class policies. Eachstudent is required to report one and discuss another one journal article within thesemester. There will be additional graded class discussions.

Tentative Schedule/Reading and Oral Reporting Assignments/DeadlinesThis is a tentative outline. We may not cover all topics during the semester. I may add/ delete or switch some topics orreadings during the semester.

I. Introduction (Boardman Ch 1 & 2; Fullerton &Stavins 1998; Arrow et al. 1996)II. Microeconomic Foundations (Musgrave 1969)

(Boardman, Ch 3)a. Producer Surplus (PS), Consumer Surplus (CS), Social Surplus (SS)b. Efficiency

(Boardman, Ch 3 App; Pearce 2006, Ch 11; Shogren et al 1994)c. Compensating Variation (CV), Equivalent Variation (EV)d. Willingness to pay (WTP), Willingness to Accept (WTA)

III. Valuing Benefits and Costs in Primary Markets (Boardman Ch 4)a. Valuing Benefits in Efficient Primary Marketsb. Valuing Benefits in Distorted Primary Markets

i.

Negative Externalitiesii. Positive externalitiesiii. Public Goodsiv. Asymmetric Information

c. Valuing Costs in Efficient Secondary Marketsi. Negligible Price Effectsii. Noticeable Price Effects

d. Valuing Costs Distorted Secondary marketsi. Negligible Price Effectsii. Noticeable Price Effects

e. Government RevenuesIV. Valuation in Secondary Markets

(Boardman Ch 5)a. Efficient Secondary Marketsb. Distorted Secondary Marketsc. Multiplier Effects in Secondary Markets (Siegfried and Zimbalist 2000; Crompton 1995)

V. Issues in Cost-Benefit Analysisa. Overview (Prest and Turvey 1965)b. Discounting (Boardman Ch 6)c. Choice of Discount Rate (Boardman Ch 10; Varian 2006; Dasgupta, 2006)


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d. Uncertainty (Boardman Ch 7; Mendelsohn 2008; Sterner and Persson 2008;John Weyent 2008; Dietz and Stern 2008)

e. Existence Value (Boardman Ch 9; Nelson & Rosenthal 1992; Kopp 1992; Quiggin1993)

f. Value of Statistical Life (Boardman Ch 15; Pearce 2006, Ch 14)VI. Valuation Techniquesa. Direct Estimation of Demand Curves (Boardman, Ch 12 and Ch 12App)

b. Indirect Methods (Boardman, Ch 13)i. Market Analogy Method , Trade-off Method, Intermediate Good Method, Asset

Valuation Method, Defensive Expenditure Methodii. Hedonic Pricing Method (plus Ridker and Henning 1967)iii. Travel Cost Method (plus Coupal et al 2001)

c. Use of Surveys Contingent Valuation Method (Boardman, Ch 14; Pearce 2006 Ch 2, 11, 8;Mitchell and Carson, 1989 Ch 1, 7, 11 & 12;Portney 1994; Diamond & Hausman 1994;Hanemann 1994)

VII.

Real World Use of CBAa. Application: Economics of the Clean Air Act (Portney 1990)b. How well does US government do CBA? (Hahn and Dudley 2008)c. Has Economic Analysis Improved Regulatory Decisions? (Hahn and Tetlock 2008)d. Critique of CBA (Kelman 1981)e. Alternatives to CBA (Viscusi 1996)

Class Policies

My class policies are consistent with UVM policies which can be found on the following websites:

Code of Student Rights and Responsibilitieshttp://www.uvm.edu/~uvmppg/ppg/student/studentcode.pdfCode of Academic Integrityhttp://www.uvm.edu/~uvmppg/ppg/student/acadintegrity.pdf

Specific class policies are below:

1. AttendanceI will not check attendance. Anything you miss is your responsibility. Whatever you miss when youare absent, come late, leave early, and register late is also your responsibility.

Policy for absences on days with exams and assignments due are discussed below

Disruptive students (those making noise, ostentatiously not paying attention, and leaving andreentering the classroom inappropriately) may be asked to leave the class. They are responsible forthe materials they miss.

2. AssignmentsAll assignments are individual assignments. It is your responsibility to be aware of the due dates forall assignments. Due dates will be announced in class.
http://proquest.umi.com.ezproxy.uvm.edu/pqdweb?index=5&did=1431937401&SrchMode=3&sid=4&Fmt=2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1231268786&clientId=26648&aid=4http://www.uvm.edu/~uvmppg/ppg/student/studentcode.pdfhttp://www.uvm.edu/~uvmppg/ppg/student/studentcode.pdfhttp://www.uvm.edu/~uvmppg/ppg/student/acadintegrity.pdfhttp://www.uvm.edu/~uvmppg/ppg/student/acadintegrity.pdfhttp://www.uvm.edu/~uvmppg/ppg/student/acadintegrity.pdfhttp://www.uvm.edu/~uvmppg/ppg/student/studentcode.pdfhttp://proquest.umi.com.ezproxy.uvm.edu/pqdweb?index=5&did=1431937401&SrchMode=3&sid=4&Fmt=2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1231268786&clientId=26648&aid=4


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Assignments are to be submitted at the beginning of the class on the day they are due, unlessotherwise noted. If you miss the deadline, your assignment score depends on whether your absenceis excused or not. Absences during due dates for assignments are excused only for personal medicalsituations and family emergencies. Late assignments will not be accepted under any circumstances.

I reserve the final authority to excuse other types of absences, and final authority on deciding

on missed assignments.

3. Graded Discussions and Oral ReportsSince this is a seminar class, a part of your grade depends on participation in class discussions.Obviously, if youre not in class, you cannot participate and cannot be graded for participation thatday. You are responsible for being up to speed with all the reading assignments as you may be calledupon to comment about it in class. Your grade for participation will count as one assignment.

Each student will be assigned one journal article to report on in class, on a specific date. The journalarticles will be drawn by lottery. The total score for the oral report (25 points) will count as oneassignment.

Each student will also be assigned one journal article to be a discussant for. As a discussant, you arerequired to prepare and submit to me a copy of at least three questions for the reporter pertaining tothe paper assigned. The questions must include factual questions pertaining to key topics the papercovers, a question that tries to relate the paper with concepts in class, and a question that stimulatesclass discussion. The journal article you will be a discussant for will be drawn by lottery. The totalscore for the discussants questions (25 points) will count as one assignment.

Some articles are harder and/or longer than others, so I encourage reporters and discussants to comeand see me if you need clarification on what sections to focus on. You may use powerpoint which I

will ask you to share with the class through Blackboard.

4. Term PaperThe term paper will be on any topic you choose. However, I would need to approve the topic, the

research questions, the first draft, and the final draft. These requirements will need to be submitted insequence. If you miss one of these requirements, I will not grade any subsequent requirements andhence, you will get a grad of zero on these missed requirements, and zero on the final draft.

There will also be an oral reporting of your paper, the schedule of which will be announced in class.The 25% share of the term paper is distributed as follows: 5%- topic and research questions, 5%-firstdraft, 5% oral report, and 10% final draft). The final draft will be evaluated according to the criteriaoutlined in the last 2 pages of the syllabus.

5. ExamsThere will be one midterm: Thursday, March 4.

A cumulative take home final exam will be due on the May 7, Friday, 3 days after the questions aredistributed. The questions will be distributed on the last day of class, May 4.

Excused AbsencesAbsences during midterm exams are excused only for personal medical situations and familyemergencies. University policy specifies that In the event of illness requiring hospitalization orextended absence from classes because of a medical condition, with permission from the student, adesignated member of the Primary Care/Womens Health staff will notify the student's Dean's


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Officewho will then be in touch with the students faculty. Please make sure to contact the CASOffice of Student Affairs if you get hospitalized.Early departure for spring break is not considered an excused absence regardless of how early youhave made your plans. University policy requires you to attend all scheduled classes.

During the Midterm

If I deem that your absence during midterm is excused, you would need to schedule with me a make-up exam as soon as possible. You need to take the make-up exam within a week of your return. Thisexam will be different from the original exam.

During the Final ExamSince grades are due within 72 hours of the final exam, if you miss or expect to miss the final exam Ineed to know on the day that the final exam is due whether your absence is excused or not.

If I deem that your absence is excused, you would need to schedule with me a make-up exam as soonas possible. You need to take the make-up exam within 2 days of the original schedule. This exam

will be different from the original exam. Otherwise, you will get an incomplete.

Unexcused AbsencesFor an unexcused absence during either of the midterms or the final exam, you will automaticallyreceive a score of zero on that missed exam.

I reserve the final authority to excuse other types of absences, and final authority on decidingon missed exams.

6. Office HoursOffice hours are designed to help students with difficult concepts and challenging quantitativeexercises. Office hours are not designed for personal tutorial sessions for students who miss classes,come late or leave early.

7. E-mailI do not make a habit of explaining exams, lectures, assignments by email. If you need somethingclarified, come to my office hours or you can speak with me before or after the class.

8. Special ConsiderationsI will strictly follow University of Vermont policies regarding student athletes, special religious eventsand learning disabilities. Please be aware that there are deadlines for informing me of your specialneeds (exams to be taken at ACCESS etc, varsity events, etc). Missing the deadline would mean you

will not be given any special considerations.

9. Re-gradingRequests for re-grading of exams/homeworks must be done in writing within 24 hours after I giveyou back your exam/homework. Be specific with your question/inquiry. I will not re-grade

homeworks/exams with broad requests for me to take a look at the answers again. It is yourresponsibility to be specific about what section of the assignment/exam you are asking to be re-graded and why you think your answer deserves more points. Any request for re-grading may subjectyour entire homework/exam for re-grading. Hence, your score may go up or down.


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List ofJournal ArticlesThese are on the courses Blackboard.

David Fullerton and Robert Stavins 1998 How Economists See the Environment Nature, Vol 395, pp 433-434.

Kenneth Arrow, Maureen Cropper, George Eads, Robert Hahn, Lester lave, Roger Noll, Paul Portney,Milton Russell Richard Schmalensee, Kerry Smith, Robert Stavins, 1996 Is there a role for cost-benefit

analysis in environmental, health and safety regulation? ScienceVol 272, No 5259, pp 221-222Richard A. Musgrave Cost-Benefit Analysis and the Theory of Public FinanceJournal of Economic Literature,

Vol. 7, No. 3 (Sep., 1969), pp. 797-806

Jason F. Shogren, Seung Y. Shin, Dermot J. Hayes, James B. Kliebenstein, Resolving Differences inWillingness to Pay and Willingness to Accept, The American Economic Review, 84:1 Mar., 1994, 255-270.

John Siegfried, Andrew Zimbalist, The Economics of Sports Facilities and Their Communities, The Journalof Economic Perspectives, Vol. 14, No. 3 (Summer, 2000), pp. 95-114.

John L. Crompton, Economic Impact Analysis of Sports Facilities and Events: Eleven Sources ofMisapplication,Journal of Sports ManagementVol 9: 14-35, 1995

A. R. Prest, R. Turvey, Cost-Benefit Analysis: A Survey,The Economic Journal, Vol. 75, No. 300Dec., 1965), pp. 683-735. [ This may be a good starting point for deciding on your term paper topic]

Robert Mendelsohn, 2008, Is the Stern Review an Economic Analysis,? Review of Environmental Economics and

Policy, Vol 2, No. 1, pp 45-60.Thomas Sterner and Martin Presson, 2008 An Even Sterner review: Introducing relative prices into the

Discounting Debate, Review of Environmental Economics and Policy, Vol 2, No. 1, pp 61-76John Weyent, 2008, A Critique of the Stern reviews Mitigation Cost Analysis and Integrated Assessment

Review of Environmental Economics and Policy, Vol 2, No. 1, pp 77-93.Simon Dietz, and Nicholas Stern, 2008, Why Economic Analysis Supports Strong Action on Climate Change:

A Response to Stern reviews Critiques, Review of Environmental Economics and Policy, Vol 2, No. 1, 94-113.Raymond J. Kopp, Why Existence Value Should Be Used in Cost-Benefit Analysis,Journal of Policy Analysis

and Management, Vol. 11, No. 1 (Winter, 1992), pp. 123-130.Rosenthal, D.H. and R. H. Nelson, Why Existence Value Should Not Be Used in Cost-Benefit

Analysis,Journal of Policy Analysis and Management, Vol. 11, No. 1 Winter, 1992, pp. 123-130.John Quiggin, Existence Value and Benefit-Cost Analysis: A Third View,Journal of Policy Analysis and

Management, Vol. 12, No. 1 (Winter, 1993), pp. 195-199.Ridker, Ronald G. and Henning, John. A. 1967. The Determinants of Residential Property Values with

Specific Reference to Air Pollution. The Review of Economics and Statistics49 (2): 246-257.Coupal, Roger H, Bastian, Chris, May, Juliet,Taylor, David T, Economic benefits of snowmobiling to

Wyoming residents: A travel cost approach with market segmentation, TheJournal of Leisure Research,Fourth Quarter 2001.

Paul R. Portney, The Contingent Valuation Debate: Why Economists Should Care,The Journal of EconomicPerspectives, Vol. 8, No. 4 (Autumn, 1994), pp. 3-17.

Peter A. Diamond, Jerry A. Hausman, Contingent Valuation: Is Some Number better than No Number?,The Journal of Economic Perspectives, Vol. 8, No. 4 (Autumn, 1994), pp. 45-64.

Michael, Hanemann, 1994, Valuing the Environment through Contingent Valuation, The Journal of EconomicPerspectives, Vol 8, No. 4, pp 19-43.

Paul R. Portney Economics and the Clean Air ActThe Journal of Economic Perspectives, Vol. 4, No. 4 (Autumn,

1990), pp. 173-181Hahn, Robert W. and Dudley, Patrick M., How Well Does the Government Do Cost-Benefit

Analysis?(January 2004).AEI-Brookings Joint Center Working PaperNo. 04-01. Available at SSRN:http://ssrn.com/abstract=495462 or DOI: 10.2139/ssrn.495462

Robert W Hahn, Paul C Tetlock. Has Economic Analysis Improved Regulatory Decisions? The Journal ofEconomic Perspectives. Nashville: Winter 2008. Vol. 22, Iss. 1; p. 67

Steven Kelman Cost-benefit analysis; an ethical critiqueAEI journal on government and society;pp. 33-40, 1981.W.Kip. Viscusi 1996, Regulating the regulators, The University of Chicago Law Review, Vol 63, No. 4, pp 1423-

1461
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