Cost benefit analysis and economic decision making

This unit introduces cost benefits analysis (CBA) and economics of decision making to what is CBA including scoping the nature of costs and benefits, understanding data requirements, and the importance of selecting the right base line for marginal analysis. It will then look more precisely into the nature of opportunity cost including the monetary and non-monetary opportunity costs of consumption and production, as well as the different categories of cost including direct and indirect costs, as well as, indirect market costs and administrative vs substantive costs in relation to policy proposals. The unit will also introduce the concept of valuation and estimation of benefits including the difference between market and shadow pricing, public goods and externalities, as well as, stated preference (i.e. contingent valuation and choice modelling) and revealed preference (i.e. hedonic pricing, market data, travel cost method and defensive expenditure) and benefit transfer valuation techniques. Finally the unit will explore the nature and importance of discounting and accounting for uncertainty and risk, including sensitivity analysis and full risk analysis (Monte Carlo analysis), as well as, look at the importance of distributional effects and decision rules including Net Present Value, Internal Rate of Return and Benefit-Cost Ratio and the balance score card approach or multi criteria analysis (MCA).