Volume 4, Issue 3

This article presents findings from a cost-benefit analysis of the Tulsa Individual Development Account (IDA) program, a demonstration program that was initiated in the late 1990s and is being evaluated through random assignment. The program put particular emphasis on using savings subsidies to help participants accumulate housing assets. The key follow-up data used in the evaluation was collected around 10 years after random assignment, about 6 years after the program ended. The results imply that, during this 10-year observation period, program participants gained from the program and that the program resulted in net costs to the government and private donors, and that society as a whole was probably worse off as a consequence of the program. The article examines in some detail whether these findings are robust to a number of different considerations, including the assumptions upon which the results depend, uncertainly reflected by the standard errors of the impact estimates used to derive the benefits and costs, and omitted benefits and costs, and concludes that they are essentially robust. For example, a Monte Carlo analysis suggests that the probability that the societal net benefits of the Tulsa program were negative during the observation period is over 90% and that the probability that the loss to society exceeded $1000 is 80%. Further analysis considered benefits and costs that might occur beyond the observation period. Based on this analysis, it appeared plausible, although far from certain, that the societal net benefits of the Tulsa program could eventually become positive. This would occur if the program’s apparent positive net impact on educational attainment generates substantial positive effects on the earnings of program participants after the observation period ended. However, there was no evidence that the educational impacts had yet begun to produce positive effects on earnings by the end of the observation period.

The literature on Congressional control of the bureaucracy has examined how members of Congress pursue strategies such as oversight, the limitation of discretion in legislation [Moe, T. (1989). The politics of bureaucratic structure. In J. E. Chubb & P. E. Peterson (Eds.), Can the Government Govern ? Washington, DC: Brookings Institution); Huber, J. D., & Shipan, C. R. (2002). Deliberate discretion: The institutional foundations of bureaucratic autonomy . New York: Cambridge University Press], and the use of tools such as administrative procedures [McCubbins, M., & Schwartz, T. (1984). Congressional oversight overlooked: police patrols vs. fire alarms. American Journal of Political Science, 21 (1), 165–179; McCubbins, M., Noll, R., & Weingast, B. (1987). Administrative procedures as instruments of political control. Journal of Law, Economics, and Organization, 3 , 243–277] and limitation riders [MacDonald, J. A. (2010). Limitation riders and congressional influence over bureaucratic policy decisions. American Political Science Review, 104 ( November), 766–782] to exert influence over executive agency decision making. One area where Congress has attempted to exert control over agency decision-making is through the legislative modification of one of the most common bureaucratic decision-making tools: benefit-cost analysis (BCA). While scholars have examined political influence in agency regulatory impact analysis BCAs for proposed rules [Shapiro, S., & Morrall III, J. F. (2012). The triumph of regulatory politics. Benefit-cost analysis and political salience. Regulation and Governance, 6 (2), 189–206], there has been a lack of examination of Congressional modification of agency BCA processes to justify and protect particularized [Mayhew, D. (1974). Congress: The electoral connection . New Haven, CT: Yale University Press] infrastructure projects in their districts. This paper will examine the effect of Congressional control over agency BCA processes to secure particularized benefits by developing an in-depth case study of the Federal Contact Tower Program (FCTP) operated by the Federal Aviation Administration (FAA) that examines the political and public management implications of Congress’s limitation of the FAA’s autonomy to operate the FCTP under current benefit-cost guidance. Building upon the literature on particularized benefits and Congressional delegation, the results of this study indicate that members of Congress use BCA processes to insulate infrastructure projects in their districts by restricting the ability of agencies to optimize program effectiveness.

Hong Kong’s franchised buses contribute significantly to its high pollution levels, which in turn result in excess mortality and hospitalizations. I show that replacing all of Hong Kong’s pre-Euro IV buses with cleaner Euro V buses would save 1260 statistical lives, among other benefits. The expected net benefit of such a project is HK$26.4 billion under a discount rate of 3.5%. This result is robust to a discount rate of 10% and a mortality decrease of half of what is expected. This is one of the first studies to estimate the public health impact of air pollution from franchised buses in Hong Kong. The city can therefore consider conducting accelerated replacement of its franchised bus fleet. Given the strongly positive result, other Asian cities with ageing bus fleets could also conduct similar benefit-cost analyses.

Circular A-94 specifies how analysts should discount costs and benefits of government projects, and thus how to account for risk. In this paper, we argue that the methods mandated by A-94 properly account for non-systematic and term risk, but not for systematic risk. A numerical example illustrates how improper accounting for systematic risk produces misleading results and social welfare loss. We conclude by proposing a simple modification of A-94’s procedures that would allow analysts to at least partially account for systematic risk.

We provide a theoretical and empirical comparison of two historic production quota buyouts: the 2002 US Peanut Quota Buyout and the 2004 US Tobacco Quota Buyout. Producer compensation under the US Peanut Quota Buyout came from the treasury while the US Tobacco Buyout was paid for by a consumer tax (i.e., tobacco tax). Given these two buyouts, an important question arises: How does the method of compensation affect distribution and efficiency? Producers, consumers, and society favor a treasury buyout (TB) for several reasons. Producers are compensated considerably more under a TB, consumers are not burdened with the charge of funding the buyout, and society does not face additional efficiency losses due to the buyout.

The social opportunity cost of capital discount rate is the appropriate discount rate to use when evaluating government projects. It satisfies the fundamental rule that no project should be accepted that has a rate of return less than alternative available projects, and it ensures that worthy projects satisfy the potential Pareto test. The social time preference approach advocated by Moore et al. fails to satisfy either of these criteria even in the unlikely case that the private sector behaves myopically with respect to a project’s future benefits and costs.

The decades-old literature on the correct method for choosing and estimating a social discount rate (SDR) has resulted in two, largely opposing viewpoints. This note seeks to clarify the key sources of disagreement between these two camps. One view advocates that the choice should be based chiefly on the social opportunity cost of the return to foregone private capital investment (SOC), and suggests a SDR of around 7%. The other viewpoint, expressed by the authors, argues that the choice should be based on the social rate of time preference (STP), the rate at which society is willing to trade present for future consumption, suggesting a SDR of around 3.5%. Because of the fundamentally normative basis of the SDR choice, neither approach generates testable hypotheses that would allow falsification. For government project evaluation, the choice ultimately depends on the opportunity cost of public funds, which in turn depends on how fiscal policy actually operates. The STP approach contends that governments set targets for deficits and public debt, so that a marginal government project will be tax-financed, largely crowding out current consumption. The SOC belief is that governments set revenue targets, so that any government project will be deficit-financed on the margin, which will largely crowd out private investment. The authors also argue that a SDR based on the STP approach is appropriate for: benefit-cost analysis of government regulations, self-financing government projects, and government cost-effectiveness studies.