Volume 4, Issue 2

We develop a model of international agreements to price a transboundry externality and provide a new heuristic to aid in interpreting negotiation behavior. Under conservative assumptions, a country’s net benefits will be positive under an efficient pollution price if its share of global damages is less than half its share of worldwide abatement costs. We solve for a permit allocation scheme consistent with that heuristic such that every region will have positive net benefits in an agreement to price the pollution externality at the globally efficient level. We then apply this framework to climate change using regional data from Integrated Assessment Models and test the feasibility of a global climate change treaty. The results indicate that several regions have positive net benefits from a globally efficient price on carbon, including Western Europe, South Asia (including India), and Latin America. We then solve for a permit allocation scheme that should produce worldwide agreement on a climate treaty. Using the same model, we show that differential carbon taxes aimed at producing universal agreement would produce tax rate differences of an order of magnitude. We also argue that shares of global GDP might be an appropriate proxy for exposure to climate damages and find that a global climate treaty would be cost-benefit justified for all countries without transfers when that assumption is used.

Following the prototype of Mexico’s Progresa program, a number of countries in Latin America and the Caribbean have initiated conditional cash transfer (CCT) programs. More recently, countries in Sub-Saharan Africa (SSA) have followed suit. However, no comprehensive framework to carry out a cost-benefit analysis (CBA) exists. This paper presents such a CBA framework for CCTs which enables design features such as targeting and conditionality to be separately evaluated. The framework is applied to an evaluation of a CCT program for orphans and vulnerable children in Kenya. The role of conditionality in SSA and the need for distribution weights is discussed.

Five states and Puerto Rico currently provide disability insurance to persons unable to work due to temporary disability. No states have adopted such policies since 1969. Labor unions and other advocacy groups have advanced bills in Washington and Oregon that would establish a public disability insurance plan to provide partial wage replacement for serious illness, accident and pregnancy. This paper estimates annual costs and benefits for a temporary disability insurance program in Washington State under the assumption that it would mirror the disability provisions in California without paid family leave.

The risk of dying in fires in nursing homes is six times the risk of dying in fires at home in Sweden. One way to reduce this risk is to install fire sprinklers. This study measures the benefits using value of full lives, life years and quality adjusted life years (QALYs) for deaths and injuries. The results show that sprinklers are cost-effective in newly built nursing homes no matter what value of life is used. However, if sprinklers are installed in already existing buildings, they are cost-effective only if the value of a statistical life is used.

Many people have wondered why the US government conducts cost-benefit analysis with close reference to the value of a statistical life (VSL). It is helpful to answer that question by reference to the “Easy Cases,” in which those who benefit from regulatory protection must pay for it. In such cases, WTP is usually the right foundation for VSL, because beneficiaries are hardly helped by being forced to pay for regulatory protection that they believe not to be in their interests. In the Easy Cases, arguments from both welfare and autonomy support the use of WTP and VSL (with potentially important qualifications involving imperfect information and behavioral market failures). The analysis is less straightforward in harder cases, in which beneficiaries do not pay for all of the cost of what they receive (and may pay little of that cost). In such cases, arguments from welfare and autonomy might not lead in any clear direction. In the harder cases, regulation might be justified on welfare grounds even if the cost-benefit analysis (based on VSL) suggests that it is not. In principle, a direct inquiry into welfare (the master concept) would be preferable to use of cost-benefit analysis. In the harder cases, distributional considerations might also count in favor of proceeding (as prioritarianism suggests). But at the current time, direct inquiries into welfare consequences and into distributional effects are challenging in practice, and hence regulators should generally rely on cost-benefit analysis, making welfarist adjustments, or adjustments based on distributional considerations, only in compelling cases.