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日期：2022-09-13 09:46

COST BENEFIT ANALYSIS & PROJECT

EVALUATION

Social CBA

References: Chapter 8 & 9, Social CBA and Economic Evaluation.

1. Identify economic efficiency and its challenges in practical

applications.

2.Understand the role of shadow prices for economic efficiency in CBA.

3. Identify and utilise relevant shadow prices using adjusted observed

prices in distorted markets.

4.Demonstrate the difference between corrective and distortionary

taxes/subsidies.

5.Describe the distribution of costs and benefits from the social CBA.

6.Calculate the benefits and costs for those with standing in a CBA.

Learning Objectives

2

Social perspective is harder to implement in CBA.

Social benefits and social costs are harder to calculate.

- Market prices often do not capture the social benefit and social costs associated with

production or consumption of a good.

So why does economics focus on perfectly competitive markets? Especially because

perfectly competitive markets are few and far between in the real world?

Benchmark – identification of socially improving policies (week 5)

Social Perspective in CBA.

3

Undistorted Market

4

Quantity

Price

S = MSC

P*

Q*

D = MSB

equilibrium

Producer

Surplus

Consumer

Surplus

MSB=MSC

What if the market was

distorted? How do we choose

the correct shadow price?

In competitive market equilibrium there is only one price as determined by the intersection

of supply and demand curves

When markets are distorted there are two prices - one reflecting demand conditions (Pb)

and one reflecting supply conditions (Ps).

Shadow - pricing - adjusting observed market prices to reflect marginal benefit or cost to

economy in CBA evaluations.

Shadow Pricing in Social CBA - The CBA analyst has to decide whether Pb or Ps is the

appropriate price to value output or input in the CBA.

Shadow Pricing Decisions

5

1.Monopoly

2.Distortive Taxes

3.Distortive Subsidies

4.Information Asymmetries

5.Public Goods

6.Externalities

7.Corrective Taxes and Subsidies

8.Monopsony

9.Labour Markets with Minimum Wages

Types of Distorted Markets

6

Output markets:

- If the intervention causes the availability of the output to increase – use WTP

- If the intervention decreases the availability of the output for use by others to (diverting use) –

use OC

Input Markets:

- If the intervention causes the availability of the input to increases – OC

- If the intervention decreases availability of the input for use by others (diverting use) - WTP

Remember it is key to identify if it is an input or an output market under evaluation!

General Rules

7

Material Inputs with Indirect Tax

8

In a perfectly competitive

market we would face supply

curve S and demand curve D.

Equilibrium Price and Quantity

would be P1 and Q1

respectively

Implementing an ad valorem

(proportional tax) decreases

the supply to Stax

Quantity

MEB = Subsidy

MSB

Identify economic efficiency and its challenges in practical

applications.

Understand the role of shadow prices for economic efficiency in CBA.

Identify and utilise relevant shadow prices using adjusted observed

prices in distorted markets.

Demonstrate the difference between corrective and distortionary

taxes/subsidies.

Describe the distribution of costs and benefits from the social CBA.

Calculate the benefits and costs for those with standing in a CBA.

Learning Objectives

31

Case Study Worked Example on Solar Farms

For students who are looking for more practice questions – refer to the online textbook activities.

Putting it into Practice!