The application of Cost Benefit Analysis (CBA) in public policy is widespread in developed countries. For more than 50 years major public policy decisions in the US have been subject to CBA rules. The current framework was established by Presidential Executive Order 12866 which on September 30 1993 established CBA as a pivotal element in the American regulatory framework. While controversial in some of its applications, particularly when the valuation of benefits is not derived from market prices, Cost Benefit Analysis (or as some would say Benefit Cost Analysis) is here to stay.
While CBA is not as prevalent in developing countries, its use has expanded, and in Latin American countries such as Chile or Peru it is a pivotal element in policy analysis and project selection. Its rigorous application, particularly in projects that involve survey based valuation methods (contingent, travel cost, hedonic) is costly, time consuming and technically demanding. As a short-cut, welfare estimates can be derived from previous studies in what is called “benefits transfer”, where benefit estimates from studies already completed can be systematically transferred.
Benefit Transfer estimation is in fact the default valuation method used to compute benefits of environmental impact assessments at the US Environmental Protection Agency, and is widely used by development agencies, particularly for environmental projects:
So, are benefit transfers a clean technology or are they the dirty laundry of environmental economics?
If you like trains, you must love reading Paul Theroux. As all good travel writers, Theroux balances crankiness, curiosity and charm. One of his best books is Dark Star Safari in which he describes his travels through the arteriosclerotic veins – trains, roads, rivers – of Africa. Theroux goes down the Nile by train and boat, through the Sudan by train and bush taxi, ferries across Lake Victoria. When he reaches Maputo he is surprised by its rail station:
Beautiful but “hardly more practical”
Lant Pritchett’s alternative road to development effectiveness
by Gastón Gertner*
Is my work at IDB so far from this road?
A few weeks ago, I sat at an Impact Evaluation Seminar organized by the Office of Evaluation & Oversight at the Inter-American Development Bank. Lant Pritchett delivered a provocative presentation: a sassy cocktail mix equally balanced in wit, irony and insights about development effectiveness. From the outset he seized everyone’s attention in the room with a simple question: is impact evaluation just a fad or a useful tool for development? His skepticism on the use of randomized controlled trials as a tool for development effectiveness draws on an array of different arguments, some new, others from ideas I have already heard in the past here.
Lant claims there are four problems with RCTs in how they lead to development effectiveness: Read more…
A few months back we shared some disheartening results in this blog: kids didn’t improve their test scores if taught by teachers from the Kenyan Ministry of Education but did better if the teachers were managed by an NGO. Although the results were striking, the policy implications were non-starters. Even if it were politically feasible, which NGO in the World is capable of managing all of the teachers in Kenya?
So the more relevant question –from a policy perspective – is not how poorly public sector workers perform when compared with some NGOs or private sector entity. The question rather should be: Which managerial practices improve public sector delivery? The challenge is that for this very large question, we know very, very little
A new paper attempts an answer.
And yes, teachers are not bureaucrats.
Last night, I started reading Tim Harford´s The Undercover Economist Strikes Back. Like anything Harford touches, it is pure gold. Or should I say pure water from the most pristine source. The book is about macroeconomics and although this blog is not about macroeconomics, I cannot resist the temptation to bring up the first chapter.
In this first chapter, Harford describes the Monetary National Income Analogue Computer (MONIAC) invented by Bill Phillips – yes, William Phillips of Phillips Curve and LSE fame. The MONIAC (I cannot believe that the name is just an innocent acronym) was a collection of tubes, pumps, levers and valves, encased in a large glass box. Think of it as a hydraulic computer where water flowing into various tanks simulates the workings of the economy.
One could argue that had Phillips lived today, he would have invented a machine that represented the 2009 financial crisis. Something like this: