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- Asplund, Disa, 1985-, et al.
(author)
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Does uncertainty make cost-benefit analyses pointless?
- 2016
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In: Transportation Research Part A. - Stockholm : Elsevier BV. - 0965-8564 .- 1879-2375. ; 92, s. 195-205
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Journal article (peer-reviewed)abstract
- Cost-benefit analysis (CBA) is widely used in public decision making on infrastructure investments. However, the demand forecasts, cost estimates, benefit valuations and effect assessments that are conducted as part of CBAs are all subject to various degrees of uncertainty. The question is to what extent CBAs, given such uncertainties, are still useful as a way to prioritize between infrastructure investments, or put differently, how robust the policy conclusions of CBA are with respect to uncertainties. Using simulations based on real data on national infrastructure plans in Sweden and Norway, we study how investment selection and total realized benefits change when decisions are based on CBA assessments subject to several different types of uncertainty.Our results indicate that realized benefits and investment selection are surprisingly insensitive to all studied types of uncertainty, even for high levels of uncertainty. The two types of uncertainty that affect results the most are uncertainties about investment cost and transport demand. Provided that decisions are based on CBA outcomes, reducing uncertainty is still worthwhile, however, because of the huge sums at stake. Even moderate reductions of uncertainties about unit values, investment costs, future demand and project effects may increase the realized benefits infrastructure investment plans by tens or hundreds of million euros. We conclude that, despite the many types of uncertainties, CBA is able to fairly consistently separate the wheat from the chaff and hence contribute to substantially improved infrastructure decisions.
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| 2. |
- Thureson, Disa, 1985-
(author)
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Cost-Benefit Analysis of climate policy and long term public investments
- 2016
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Doctoral thesis (other academic/artistic)abstract
- This compilation dissertation consists of four essays with the common theme of welfare analysis of long-term public investments. The first two essays focus on analysis of climate change mitigation, i.e., the social cost of carbon dioxide. The third essay focuses on cost-benefit analysis (CBA) of transport investment projects, while the last essay takes a broader perspective on welfare analysis.Essay 1: The Temporal Aspects of the Social Cost of Greenhouse Gases. The purpose of Essay 1 is to investigate the temporal aspects of the social cost of greenhouse gases. I find that the calculation period should ultimately be modeled to be consistent with the discount rate and that the “global-warming potential” concept is unsuitable for calculation of the social cost of GHGs other than carbon dioxide.Essay 2: Avoiding path dependence of distributional weights: Lessons from climate change economic assessments. In Essay 2, I explore shortcomings in income weighting in evaluation of climate change policy. In short, in previous versions of two of the most important existing models, regional economic growth is double counted. The proposed alternative approaches yield about 20–40% higher values of SCCO2 than the old approach.Essay 3: Does uncertainty make cost-benefit analyses pointless? In Essay 3, the aim is to investigate to what extent CBA improves the selection decision of projects when uncertainties are taken into account, using a simulation-based approach on real data of infrastructure investments. The results indicate that, in line with previous literature, CBA is a rather robust tool and considerably increases the quality of decision making compared with a random selection mechanism, even when high levels of uncertainty are considered.Essay 4: Household Production and the Elasticity of Marginal Utility of Consumption. In Essay 4, I develop a new model to show that omission of household production in a previous model leads to bias when the elasticity of marginal utility of consumption, EMUC, is estimated. I further offer new, unbiased estimates based on current evidence of the included parameters, suggesting a lower bound of EMUC at about 0.9.
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| 3. |
- Thureson, Disa, 1985-, et al.
(author)
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Household production and the ealsticity of marginal utility of consumption
- 2016
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Reports (other academic/artistic)abstract
- Chetty (2006) developed a new method of estimating the Elasticity of Marginal Utility of Consumption (EMUC) from observed work time responses to wage changes and derived an upper bound of 2 for this parameter. Here I show that the omission of household production in Chetty’s model may lead to bias, and perform a numerical sensitivity analysis of Chetty’s results in this respect. I develop a new model that includes household production from which I derive new, unbiased EMUC formulas. I offer empirical estimates based on current evidence of the included parameters, suggesting a lower bound for EMUC of about 0.9.
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| 4. |
- Thureson, Disa, 1985-
(author)
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Avoiding path dependence of distributional weights : Lessons from climate change economic assessments
- 2016
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Reports (other academic/artistic)abstract
- In some cost benefit analysis (CBA) applications, such as those used for the valuation of climate change damage, distributional weights are used to account for diminishing utility of marginal income. This is usually done by means of intra-temporal distributional weights, which are combined with discounting to account for inter-temporal equity and efficiency. Here, I show that this approach might introduce some inconsistencies in terms of path dependence. In short, this inconsistency means that regional economic growth is double counted. This is because income weighting is performed both through the discount rate and through the distributional weights such that growth shows up twice in the weighting process. Using the PAGE2002 model, it is found that the inconsistency problem in the original model erases the influence of distributional weights on the social cost of carbon dioxide (SCCO2) compared to a standard CBA approach. The alternative approaches proposed here yield about 20%–40% higher values of SCCO2 than the old approach. While this has been briefly commented on in previous work, it has not yet been more thoroughly analyzed nor communicated to the broader community of climate policy and economic analysts who are not deeply interested in the specifications of the climate impact assessment models.
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| 8. |
- Thureson, Disa, 1985-
(author)
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The Temporal Aspects of the Social Cost of Greenhouse Gases
- 2016
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Reports (other academic/artistic)abstract
- The purpose of this study is to investigate the temporal aspects of the social cost of greenhouse gases (GHGs). I am particularly interested in the interaction between time of emissions, discounting, and type of GHG (where different GHGs have different atmospheric lifetimes). I show graphically how the social costs of GHGs depend on different parameter values and how the global damage potential for methane and sulfur hexafluoride evolves over time. I find that that the calculation period ultimately should be modeled to be consistent with the discount rate and that the "global-warming potential" concept is unsuitable for calculating of the social cost of GHGs other than carbon dioxide.
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