Have you ever encountered the terms “project cost” and “project benefits” and wanted to know how they are analysed? Or wished you could know techniques to help you decide whether a legislative or investment proposal should be pursued? Have you wondered on what basis some of them get a “green light” while others: do not? Were you ever curious how to account for social costs and benefits when analysing a proposed project or piece of legislation? If so – this course is for you!
The course will guide you through the cost-benefit analysis (CBA) of a hypothetical – although very plausible – investment project called “Alphabet”, that is, construction of a permanent transportation link between the Alpha Point and Beta Island: two imaginary locations. At first the case study, and the analysis tools, will be explained in detail. Then the project will be reviewed from the private investors’ point of view and we’ll show you how they calculate costs and benefits. The discounting method and net present value used to decide about “go” or “not to go” will be introduced. In further sections we’ll look at “Alphabet” from different perspective and analyse its social costs and benefits. At the end we’ll discuss how to deal with uncertainty and familiarize you with so-called “sensitivity analysis”. You will see how the “Alphabet” CBA responds to the changes in assumptions we made at the beginning. Our final recommendations will be followed by pointing you to advanced aspects of cost-benefit analysis and various other applications of this method.
By following this course, you will be able to conduct basic cost-benefit analysis: you will distinguish between private and social CBA and appreciate the significance of the latter. You will learn how to identify private costs and benefits, how to use discounting and calculate net present value. You will also be able to identify and appraise social costs and benefits, both using market prices, and those not priced by the market. Moreover, you will acquire skills to conduct sensitivity analysis, that is, analyse and deal with uncertainty. Finally, you will appreciate the potential of CBA in other relevant policy areas.
Lesson 1: Introduction
- Course method and plan
- The Alphabet project
Lesson 3: Discounting
Lesson 4: Social costs and benefits: valuation with market prices
Lesson 5: Social costs and benefits: non-market valuation
Lesson 6: Uncertainty
Lesson 7: Extensions
Mr Maciej Drozd Bio note