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Applications Cost Benefit Analysis, many hands problem. Lecture 5. Social cost benefit analysis. Governments must compare policy alternatives , e.g. build a bridge or dig a tunnel, build a new airport or status quo, impose tobacco ban or not
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ApplicationsCost Benefit Analysis, many hands problem Lecture 5
Socialcost benefit analysis • Governments must compare policy alternatives, e.g. build a bridge or dig a tunnel, build a new airport or status quo, imposetobacco ban or not • Compare in terms of futureadvantagesanddisadvantages • Use a metrictocompare • Utility? Most often: money • Monetizeall (or most of) the benefits andcosts • Recalculatetothesameyear (with interest rate)
Benefits andcoststhat do not have a market price • Casualties, wounded • CO2 emissions • Noise • Nature, environment • Different methods • What are thecostsif we reduceit? e.g. plant trees toreduce CO2 • Willingnesstopay • Willingnessto accept
CBA of CBA… • Rationalizes public decision making • Lesssubjective • Forcesonetoincludeall relevant considerations • Provides common ground • Never complete • Someestimates are veryuncertain
CBA of increase speed limit to 130 km/h 2011 Dutch Ministry of infrastructureand watermanagement Benefits? Costs?
Determination Benefits Costs Fuelcosts price x liters Emissions plant trees Nature WTP / WTA / intrinsicvalue? Deaths 2 million/person, via WTP Wounded hospitalcosts Noise WTP / WTA / costs of building noisebarrier • Travel time averagesalary x time
Weighing • Utilitarian: addandsubtract or calculate B/C ratio • Non-utilitarian: constraints, thresholds
Actual 2011 report • Nature: impact on species / habitats • Emissions: European norms • Actualinvestmentstobuildnoisebarriers • Actualinvestmentstomitigatecasualties • Justification of the analysis is not explicit andcanbecriticized: • Do human lives have a price? • Are allvaluescommensurable? • Value of nature: dependent on our WTP? • Futuregenerations? • Discount rate = market interest rate? • etc
Problem of Many Hands • Something bad happens due to collective human conduct • But difficult or impossible to pinpoint individual responsibility Problem: collective responsibility but no individual responsibility
Criteria moral responsibility A person is morally responsible if something goes wrong if: • He did something wrong - Wrong doing • He did not act under coercion and could have acted differently – Freedom • He caused the bad state of affairs – Causality • He could have known that his action would cause the bad state of affairs - Knowledge
Responsibility Can also sometimes be assigned to collectives like • Organizations (firms, NGO’s, governments) • Groups (people playing soccer in the park) • Occasional collections (bystanders who can prevent something together) Have / ought to have a collective aim.
Importance of assigning responsibility • Retribution • Correction • Prevention
PMH: gap collective responsibility - individual responsibility, for example Collective Individual Wrong doing Freedom Causality Knowledge • Wrong doing • Freedom • Causality • Knowledge
Examples • Oil spill Mexico BP • Herald Free Enterprise • Citicorp building • Climate change
BP Oil Spill: Who is toBlame? https://www.youtube.com/watch?v=txmb-Tzxyd8 BP, Haliburton and Transocean blamed each other. National Commission, installed by Obama: “clear mistakes” [but] “though it is tempting to single out one crucial misstep or point the finger at one bad actor (..) any such explanation provides a dangerously incomplete picture” BP: “a complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation team interfaces came together to allow (..) the accident.
How to deal with PMH cases? Three models: • Hierarchical model: top management is responsible • Collective model: each member is responsibleforthewhole • Individual model: each member is responsible in relationto his/her contribution (seesection 9.4 fromthechapter on this)