Band 5, Heft 1

Much is known about private financial returns to education in the form of higher earnings. Less is known about how much social value exceeds this private value. Associations between education and socially-desirable outcomes are strong, but disentangling the effect of education from other causal factors is challenging. The purpose of this paper is to estimate the social value of one form of higher education. We elicit willingness to pay for the Kentucky Community and Technical College System (KCTCS) directly and compare our estimate of total social value to our estimates of private value in the form of increased earnings. Our earnings estimates are based on two distinct data sets, one administrative and one from the U.S. Census. The difference between the total social value and the increase in earnings is our measure of the education externality and the private, non-market value combined. Our work differs from previous research by focusing on education at the community college level and by eliciting values directly through a stated-preferences survey in a way that yields a total value including any external benefits. Our preferred estimates indicate the social value of expanding the system exceeds private financial value by at least 25% with a best point estimate of nearly 90% and exceeds total private value by at least 15% with a best point estimate of nearly 60%.

Prevention of juvenile sex trading in the US has risen to prominence in public policy discourse. We develop a generalized benefit-cost model to shed light on this policy issue and illustrate the framework with a case study from Minnesota. The model treats government-funded intervention as an investment project and calculates its net present value. Benefits are derived from harms avoided by reducing the extent of sex trading. The impacts of youth involvement in the market for sexual services are highly complex, and clear data on them are lacking. To account for empirical ambiguity we develop the model around a representative individual, approximate the effect of intervention on the sex market, and conduct sensitivity analysis with key model parameters. The case study evaluates seventeen distinct harms caused by sex trading based on conservative best estimates from scholarly literature. We find a large positive Net Present Value, suggesting it is in the best interest of Minnesota taxpayers to support intervention.

Behavioral economics posits a number of cognitive biases and limitations, which raises questions as to whether revealed willingness to pay equals true willingness to pay. If so, benefit-cost analysis, with a number of methodological advantages, would need to be replaced. Prior analyses of the issue by Sunstein, Sugden, and Bernheim and Rangel fail to offer guidance that would avoid substituting centralized judgments for decentralized information on benefits and costs. Alternatives including using post-implementation valuations, libertarian paternalism, and direct democracy on policy issues also have conceptual or practical limitations. A tentative suggestion is democratic delegation, somewhat appealing because it is already applied to cope with bounded rationality and non-efficiency values. Viewing benefit-cost analysis as a market analogue, and restricting the domain of behavioral economics to uninformed consumers, may be useful guides. The most important guidance may be to require very strong evidence of substantial choice failure before abandoning benefit-cost analysis.

As directed by the American Recovery and Reinvestment Act of 2009, the US Department of Transportation (DOT) created the Transportation Investment Generating Economic Recovery (TIGER) discretionary grant program for surface transportation infrastructure projects. Through 2013, there have been five rounds of the grant program. TIGER uses a multi-step competitive application process to award surface transportation funds. TIGER applications are initially screened by US DOT’s staff of technical experts. For projects forwarded by the review team, US DOT economic experts then review the applicant’s benefit-cost analysis (BCA) and attempt to determine the likelihood that the benefits exceeded costs (i.e. not the applicant’s self-determination). The final awardees are then selected by a Review Team of Modal Administrators and DOT Office of the Secretary level officials. The purpose of this paper is to discuss many of the common errors in preparing, and issues in reviewing the applicant’s BCA and in making a net benefit determination. A secondary purpose is to determine if the most deserving projects, based on an applicant’s BCA and the likelihood that benefits exceeded costs, are more likely to receive grant funding. We do so for the second through the fifth rounds of the program.

The core analytical elements of Executive Order 12291 are widely seen as having been embraced by both Democratic and Republican administrations. Some critics argue, however, that this embrace is superficial and serves more as a cover for political decisions. To address this question, this paper examines the analytical priorities presented in the annual Report to Congress on the Benefits and Costs of Federal Regulations over the period from 1997 to 2012. While there is general agreement across administrations on such broad issues as the importance of benefit-cost analysis in providing a shared framework and discipline to the analytic process, we identify important differences in five areas: monetization of benefits, scope of costs considered, behavioral economics, intergenerational benefits, and the general equilibrium impacts of regulation. All are active and exciting issues in the current scholarly work on regulation. These cross-administration differences appear to reflect a relatively modest shifting across political parties on issues where reasonable people might disagree, rather than major ideological swings in approach.