Cost Benefit
Scenarios for PLS 505—Public Economics (Dluhy)
Time Horizon 20-30 years, consult with scientists on it.
Counterfactual would be helpful, what if no beach re-nourishment, what would happen, look for another beach community that has gone through same thing with and without.
Costs—
Restoration costs
Maintenance costs
Benefits---
Property values, immediate area vs. surrounding area
Tax revenues
Jobs created in tourist industry
Increased visitation and tourist spending
Time Horizon 20-30 years. Life of structure and ramps.
Costs—
Cost of structure and ramps
Maintenance of structure and ramps
Eminent Domain costs, take property for project
Lost business opportunities from displaced businesses
Lost taxes from residential and commercial
Benefits—
Gains in time travel
Fewer accidents
Less stress
Lower cost for traffic signals/maintenance no longer needed
Lower law enforcement costs
Travel Horizon of 7 years, life of the trucks.
· 3 person crew, rear loading truck (biggest and heaviest truck)
· 2 person, rear loader (popular with crew)
· 2 person, side loader (popular with crew)
· 1 person, side loader, hydraulic lift, lighter truck
Costs—
Labor
Equipment
Maintenance
Replacement of vehicles
Benefits---
Improved morale
Value of community appearance
Employee safety
Crew reductions
Cost of parts for new trucks
Street deterioration, curb damage from bigger and heavier trucks
Value of refuse collection to service recipients
4.Illegal Immigrants
Costs---
INS costs
Other law enforcement costs
Correction expenses for those detained or serving sentences
Medicaid and indigent care (immigrants not excluded for the most part)
Education, per pupil expenditures (immigrants not excluded)
Other publicly funded services
Non-profit services provided
Benefits---
Federal , State, and Local Taxes paid during their lifetime
Charitable and voluntary contributions
Value added to critical industries (assuming that service would not be performed without them
Tricky question---estimates made over what period of time, 20-35 years and then valuing the sons and daughters of the immigrants
5 .Mason Inlet
Costs---
Estimated
Lost taxes and other tourist revenues during project
$6.5 million for initial costs
annual dredging for next 30 years
Benefits---
Save property values of adjacent properties, keep on the tax rolls
Property tax revenue preserved and possibly increased
Increased tourism and spending in community, also more business/sales taxes
With the emphasis on
Ecotourism , we need to know the per person user value of the reserves
Costs---
Annual costs for maintaining the park and the buildings
Costs for making improvements
Benefits---
Visitations per year
Travel demand---number of trips in last five years and the travel spending per visitor including getting to the Reserve and then while staying at the Reserve
Visitation fees
Then make improvements like increased fish, less visitor congestion, improved water visibility, improved coral reef---Then ask frequent visitors if they would be willing to come more often if the above improvements are made. So how many more trips would they make in the next five years, with the improvements and without. This should give a figure to the value of the change (cost and benefits of making improvements)
Inflation needs to be taken into account with spending and revenues. Therefore we need “real prices”. Adjusting for inflation should not be confused with discounting to present value.
Inflation is the decline in purchasing power of dollars as the price value increases over time. Need real prices for good or service.
Discounting reflects a dollar value figure or a greater value in present than in the future. Or put in another way, what is the present money’s ability to earn a return from an alternative investment.
In order to add money over time, future dollars are discounted to obtain present values.
In economic analysis, dollar
values incurred over time are not to be added together without
discounting. Therefore always discount
to present value.
Start with the date when the
policy resources are first committed to begin to generate opportunity cost
Discount Rate---is the rate of return from best alternative investment, you will need to consult financial histories for different products or sectors of the economy so you will know the range of possible rates of return.
Efficiency—a policy’s net benefits are efficient when the benefits are greater than a foregone investment or return, see the swimming pool example.
*Caution: High discount rates penalize policies with large future benefits and large initial or start up costs. For example, swimming pools, marinas, recreational or eco-tourism reserves, convention centers, sports arenas, etc. 10 years may be way too soon. 20 years may be better. With expensive waste management equipment or other costly technology, it may be 7-10 years before it pays off.
In the short run, what would be easier to justify in cost/benefit terms? Performing arts center? Museum? Convention Center? Aquarium ? Athletic stadium ? Swimming pool?
· You need to decide the entire period over which policy benefits and costs are going to occur. Or the life of the project.
· You need to consult with experts about the life of the project/purchase and review the literature. You can use an expert panel to help.
· Thus, cars may be 7 years, fire trucks 20 years, marinas 50 years, beach re-nourishment 30 years, public housing project 30-40 years, convention center of sports facility 30-40 years, etc., major highway 20 years,
Sometimes referred to at
Willingness to Pay (WTP)
Contingent valuation is a survey method that elicits stated hypothetical valuations from respondents in order to estimate the economic value of a non-market effect.
Social costs are values by the opportunity cost of the allocated resource—the foregone benefits of the resources best alternative use.
Foregone benefit---individuals and future generations (ie., kids) willingness to pay for
· Aesthetic things
· Environmental preserves
· Beach re-nourishment
Exemplar: Would you be willing to pay an extra $100 to clean up the beach?
With estimated aggregate demand you can look at an open ended question like—What are you willing to pay…….? Or a price list, would you be willing to pay? $25, $50, $100, etc.
Value of clean air: compare property values impacted by different pollution levels, they would need to be comparable in all other ways except pollution levels.
Water quality: compare properties next to high quality water compared to those next to low quality, with properties otherwise similar.
Beach: Value of beachfront property compared to certain distances from the water.
Value of a natural habitat—condominiums with preserves vs. condos without preserves.
Value of mass transit: value of property with direct access to transit line/metro vs. those with lower proximity.
Homes next to restricted access expressways are almost always devalued.
Can use a focus group,
survey, and site records.
We are looking at the costs
and benefits of visiting different sites (recreational, get wood for the
fireplace, depositing wastes from household, etc.)
Assumption is that the larger the
travel costs, the smaller or the less the visitation rate.
Start by calculating mean distance and traveling time.
Be careful with variable costs like cost per mile and fixed costs like insurance and license costs.
Now what is the time costs
for traveling to and from the site, one way to do this is to use a wage rate
(foregone opportunity cost) by taking the amount you would have earned in
engaging in labor if in congestion. If
traveling to recreation or leisure you may want to use one third of the wage
rate as a compromise. You sit in
traffic and could be earning a salary.
But traveling to recreation means you have made a choice but if the trip
is too long you wage rate may increase in value.
You then calculate the cost
per trip or cost per mile and then calculate where visitors are coming
from. The zones. Now you know how many visitors per year you
have from each zone and the cost per visitor.
This should effect the visitation rate.
What is the value of this
information? Marketing strategies? Improvements?
We are always interested in
a saved or lost human life.
Thus, fatalities, accidents,
pollution, stress, health, etc. are critical to the CBA.
Willingness to forego some expenditure that might ensure preservation of one’s own life in order to achieve other objectives. How much is a human life worth?
· Expected future earnings, undervalues retirees, handicapped children and other who have no anticipated earnings. Other wise you can:
Project present value of future earnings (NPV) and subtract consumption. This has been used in wrongful death suits. Job displacement without a future of employability (hard to show).
· Willingness to pay for insurance policy (WTP). With age and children the size of the insurance policy goes up until around retirement when it starts to go down. Human life is valued less.
· Willingness to accept more pay for a risky job, Excess compensation to pay for risk----fire fighters and many police officers receive salaries above market for people with same skills and education. Other high risk occupations, waste collection, pilots, window washers, etc.
· WTP for safer products. Buy a Volvo, have an alarm in the house, make the perimeter of the home safe, buy other products and take precautions to preserve life. This can be costed out. Some people over due this, others have the minimum. How much is it worth?
Sprawl
Weary Los Angeles Builds Up and In
Facts:
· Second largest metro area in U.S., with about 10 million people
· Has nearly run out of land for housing, reached the desert on East.
· Eastern boundary of LA stretches almost to the desert, 70 miles.
· Low density
· 378 units of government
· public choice theory at is best
· 2000 Census showed that 18 of the nation’s 53 “boomburgs” are in the LA area. “Boomburgs” are communities of 100,000 or more that grew by at least 10 % in last decade and are not the principal cities in the region.
· Drivers in LA now spend an average of seven working days a year motionless in traffic.
· No new freeways under construction or planned for.
Some Examples
of Coming to grips with Sprawl in LA (some good signs)