PFM Board
Medium Term Expenditure Framework => Public Investment Management => Topic started by: Napodano on December 06, 2012, 07:47:29 GMT
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Exercise 1:
You live in a city that currently does not require bicycle riders to wear helmets. Furthermore, imagine that you enjoy riding your bicycle without wearing a helmet.
a. From your perspective, what are the major costs and benefits of a proposed city ordinance that would require all bicycle riders to wear helmets?
b. What are the categories of costs and benefits from society’s perspective?
Answer: test your skills before the answer is posted in a week time.
Source: Cost-Benefit Analysis : Concepts and Practice, A. Boardman, D. Greenberg, A. Vining, D. Weimer
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Solution to Exercise 1:
'a. The most significant categories of costs to you as an individual are probably: the purchase price of a helmet, the reduced pleasure of riding your bicycle while wearing a helmet, diminished appearance when you take the helmet off (bad hair), and the inconvenience of keeping the helmet available. The most significant categories of benefits are probably: reduced risk of serious head injury (morbidity) and reduced risk of death (mortality).
b. There are a number of categories of costs and benefits that do not affect you (directly or are insignificant), but which are important in aggregate. These are:
• program enforcement (a cost)
• reduced health care costs (a benefit), although this may not be as high as one might expect if bicyclists ride more aggressively because they feel safer (this is called off-setting behaviour)
• increased pollution, due to cyclists switching to cars (a cost)
A social cost-benefit analysis would take account of these costs and benefits in addition to your costs.'
Source: Cost-Benefit Analysis : Concepts and Practice, A. Boardman, D. Greenberg, A. Vining, D. Weimer
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Two comments on my side:
1. I find funny the cost of 'diminished appearance' but in the society in which we live it should not be underestimated
2. I had not envisaged the 'program enforcement' costs. My mistake indeed but this point shows the importance of the CBA analysis and the needed experience of the expert(s) appraising the project.