Cost-Benefit Analysis 3rd Edition 2022 Hardbound by Campbell, Harry F., Taylor and Francis Ltd

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Taylor and Francis Ltd Cost-Benefit Analysis 3rd Edition 2022 Hardbound by Campbell, Harry F.

Now in its third edition, Cost-Benefit Analysis has been updated, offering readers the perfect introduction to project, programme and policy appraisal using basic tools of financial and economic analysis._x000D__x000D_The key economic questions of any social cost-benefit analysis are: do the benefits of the project or policy exceed the costs, no matter how widely costs and benefits are spread, and irrespective of whether or not project impacts, such as environmental effects, are reflected in market prices? And which group or groups of individuals receive the benefits and which bear the costs? This book addresses these questions with an emphasis on putting the theory presented in the book into practice._x000D__x000D_This third edition has several attractive features:_x000D__x000D__x000D__x000D_Readers are encouraged to develop their own skills by applying the tools and techniques of cost-benefit analysis to case studies and examples, including an analysis of a project which is developed throughout the book._x000D_The book emphasizes the use of spreadsheets which are invaluable in providing a framework for the cost-benefit analysis._x000D_A dedicated chapter provides guidance for writing up a report which summarises the analysis which has been undertaken._x000D_New pedagogical features, including Technical Notes and Examples, have been added as an aid to readers throughout the text._x000D_An appendix provides 14 additional case studies which can be developed in class or as assignment projects._x000D_Additional material for instructors and students is provided through Support Material maintained by Routledge._x000D__x000D_This updated edition is an ideal text for a course on cost-benefit analysis where the emphasis is on practical application of principles and equipping students to conduct appraisals. It is also a useful handbook for professionals looking for a logical framework in which to undertake their cost-benefit analysis work._x000D_ _x000D_ List of figures xi_x000D_ _x000D_ List of tables xiv_x000D_ _x000D_ List of examples xvi_x000D_ _x000D_ List of Technical Notes xvii_x000D_ _x000D_ Preface xviii_x000D_ _x000D_ Acknowledgements xxii_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction to cost-benefit analysis 1_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 1_x000D_ _x000D_ _x000D_ _x000D_ The Referent Group 6_x000D_ _x000D_ _x000D_ _x000D_ The structure of the cost-benefit model 8_x000D_ _x000D_ _x000D_ _x000D_ The use of spreadsheets in cost-benefit analysis 11_x000D_ _x000D_ _x000D_ _x000D_ The rationale for public projects 14_x000D_ _x000D_ _x000D_ _x000D_ The role of the analyst 16 Further reading 17_x000D_ _x000D_ Exercises 17_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Project appraisal: principles 19_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 19_x000D_ _x000D_ _x000D_ _x000D_ Project appraisal from an individual viewpoint 19_x000D_ _x000D_ _x000D_ _x000D_ Investment opportunities in the economy as a whole 22_x000D_ _x000D_ _x000D_ _x000D_ The algebra of NPV and IRR calculations 23_x000D_ _x000D_ _x000D_ _x000D_ Annuities and perpetuities 30_x000D_ _x000D_ _x000D_ _x000D_ The Rule of 72 34_x000D_ _x000D_ _x000D_ _x000D_ Economic depreciation and the annual cost of capital 35_x000D_ _x000D_ _x000D_ _x000D_ Treatment of inflation in project appraisal 36_x000D_ _x000D_ _x000D_ _x000D_ Incorporating a risk factor in the discount rate 38 Further reading 39_x000D_ _x000D_ Exercises 39_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Project appraisal: decision-rules 40_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 40_x000D_ _x000D_ _x000D_ _x000D_ Discounted cash flow analysis in practice 40_x000D_ vi Contents_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Discounting and the time value of money 41_x000D_ _x000D_ _x000D_ _x000D_ Using Annuity Tables 44_x000D_ _x000D_ _x000D_ _x000D_ Using investment decision-making criteria 45_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The Net Present Value (NPV) criterion 45_x000D_ _x000D_ _x000D_ _x000D_ The Benefit-Cost Ratio decision-rule 47_x000D_ _x000D_ _x000D_ _x000D_ The Internal Rate of Return (IRR) criterion 48_x000D_ _x000D_ _x000D_ _x000D_ Problems with the IRR decision criterion 51_x000D_ _x000D_ _x000D_ _x000D_ Problems with the NPV decision criterion 53_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Using spreadsheets 59 Further reading 64 Exercises 64_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Private cost-benefit analysis: financial appraisal 68_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 68_x000D_ _x000D_ _x000D_ _x000D_ Benefits and costs measured as cash flows 69_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Identifying project inputs and outputs 69_x000D_ _x000D_ _x000D_ _x000D_ Valuing inputs and outputs at market prices 70_x000D_ _x000D_ _x000D_ _x000D_ Characteristics of cash flows 70_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Inflation and relative prices 72_x000D_ _x000D_ _x000D_ _x000D_ Incremental or relative cash flows 74_x000D_ _x000D_ _x000D_ _x000D_ Capital costs and the treatment of depreciation 76_x000D_ _x000D_ _x000D_ _x000D_ Interest charges, financing flows and cash flow on equity 78_x000D_ _x000D_ _x000D_ _x000D_ Taxation and after-tax net cash flows 83_x000D_ _x000D_ _x000D_ _x000D_ The discount rate 84_x000D_ _x000D_ _x000D_ _x000D_ Summary of the relationship between the Market Analysis and the Private Analysis 85_x000D_ _x000D_ _x000D_ _x000D_ Derivation of project private cash flows using spreadsheets 85 Appendix to Chapter 4: Case Study of International Cloth Products 91 Further reading 97_x000D_ _x000D_ Exercises 97_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Cost-benefit analysis and economic efficiency 99_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 99_x000D_ _x000D_ _x000D_ _x000D_ The competitive market 100_x000D_ _x000D_ _x000D_ _x000D_ Shadow-pricing project inputs and outputs 103_x000D_ _x000D_ _x000D_ _x000D_ Shadow-pricing marketed inputs 104_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Materials 105_x000D_ _x000D_ _x000D_ _x000D_ Labour 109_x000D_ _x000D_ _x000D_ _x000D_ Capital 117_x000D_ _x000D_ _x000D_ _x000D_ Land 118_x000D_ _x000D_ _x000D_ _x000D_ Rules for shadow-pricing marketed inputs 118_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Shadow-pricing marketed outputs 119_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Rules for shadow-pricing marketed outputs 124_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The efficiency pricing rules: summary 124_x000D_ Contents vii_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Corrective taxation: the modified efficiency pricing rules 125_x000D_ _x000D_ _x000D_ _x000D_ How to determine which pricing rule to follow 126_x000D_ _x000D_ _x000D_ _x000D_ Shadow-pricing public funds 128_x000D_ _x000D_ _x000D_ _x000D_ Shadow-pricing foreign exchange 133_x000D_ _x000D_ _x000D_ _x000D_ The discount rate 133_x000D_ _x000D_ _x000D_ _x000D_ Worked examples 136_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Efficiency analysis of the National Fruit Growers (NFG) Project 136_x000D_ _x000D_ _x000D_ _x000D_ Cost-benefit analysis of the 55 mph speed limit 140_x000D_ _x000D_ _x000D_ _x000D_ Appendix to Chapter 5: Economic Efficiency Analysis of the ICP Case Study 142 Further reading 145_x000D_ _x000D_ Exercises 146_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The distribution of project net benefits 149_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 149_x000D_ _x000D_ _x000D_ _x000D_ How to identify Referent Group net benefits in practice 150_x000D_ _x000D_ _x000D_ _x000D_ Some examples of the classification of net benefits 154_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Shadow-prices on project inputs 154_x000D_ _x000D_ _x000D_ _x000D_ Shadow-prices on project outputs 160_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Corrective taxation 161_x000D_ _x000D_ _x000D_ _x000D_ Further examples 166_x000D_ _x000D_ _x000D_ _x000D_ Lessons from the examples 168_x000D_ _x000D_ _x000D_ _x000D_ Worked example: Referent Group Analysis of National Fruit Growers' (NFG) Project 168_x000D_ _x000D_ Appendix 1 to Chapter 6: Referent Group net benefits in the ICP Case Study 171_x000D_ _x000D_ Appendix 2 to Chapter 6: Incorporating the public funds cost premium in the ICP Case Study 177_x000D_ _x000D_ Further reading 179_x000D_ _x000D_ Exercises 180_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Consumer and producer surplus in cost-benefit analysis 182_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 182_x000D_ _x000D_ _x000D_ _x000D_ Real versus pecuniary effects 183_x000D_ _x000D_ _x000D_ _x000D_ Consumer surplus 184_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Aggregating consumer surplus measures 185_x000D_ _x000D_ _x000D_ _x000D_ The significance of income distribution 186_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Producer surplus 186_x000D_ _x000D_ _x000D_ _x000D_ Accounting for output price changes 186_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Benefits of urban transport projects 187_x000D_ _x000D_ _x000D_ _x000D_ Benefits of worker training 193_x000D_ _x000D_ _x000D_ _x000D_ Producer benefits from an irrigation project 196_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Accounting for input price changes 201_x000D_ _x000D_ _x000D_ _x000D_ Price changes in other markets 203_x000D_ _x000D_ _x000D_ _x000D_ Classification of consumer and producer surplus changes 204_x000D_ _x000D_ viii Contents_x000D_ _x000D_ Appendix 1 to Chapter 7: Allowing for an increase in the skilled wage in the ICP Case Study 206_x000D_ _x000D_ Appendix 2 to Chapter 7: Compensating and equivalent variation 209 Further reading 215_x000D_ _x000D_ Exercises 215_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Non-market valuation 217_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 217_x000D_ _x000D_ _x000D_ _x000D_ Causes of market failure 217_x000D_ _x000D_ _x000D_ _x000D_ Valuing environmental costs and benefits 219_x000D_ _x000D_ _x000D_ _x000D_ Incorporating non-market values in cost-benefit analysis 223_x000D_ _x000D_ _x000D_ _x000D_ Methods of non-market valuation 224_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The production approach 225_x000D_ _x000D_ _x000D_ _x000D_ The utility approach 230_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Revealed and stated preference methods of applying the utility approach 233_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Revealed preference methods 234_x000D_ _x000D_ _x000D_ _x000D_ Stated preference methods 240_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Benefit Transfer and Threshold Analysis 243_x000D_ _x000D_ _x000D_ _x000D_ Alternative approaches to environmental valuation 244_x000D_ _x000D_ _x000D_ _x000D_ Non-market valuation: the value of life 245_x000D_ _x000D_ 8.10 The Pandemic (NB page number required)_x000D_ _x000D_ 8.11 Climate Change (NB page number required)_x000D_ _x000D_ Appendix to Chapter 8: The annual benefits of the Virginia Creeper Trail as measured by the Travel Cost Method 248_x000D_ _x000D_ Further reading 251_x000D_ _x000D_ Exercises 251_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Uncertainty, information and risk 253_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 253_x000D_ _x000D_ _x000D_ _x000D_ The value of information 255_x000D_ _x000D_ _x000D_ _x000D_ An abbreviated cost-benefit analysis 257_x000D_ _x000D_ _x000D_ _x000D_ The option of delay 257_x000D_ _x000D_ _x000D_ _x000D_ Calculating the value of information 260_x000D_ _x000D_ _x000D_ _x000D_ The cost of risk 262_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The theory of risk aversion 262_x000D_ _x000D_ _x000D_ _x000D_ Dealing with project risk 265_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Risk modelling 267_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Use of discrete probability distributions 268_x000D_ _x000D_ _x000D_ _x000D_ Joint probability distributions 269_x000D_ _x000D_ _x000D_ _x000D_ Continuous probability distributions 270_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Using risk analysis in decision-making 273_x000D_ _x000D_ _x000D_ _x000D_ Modelling risk in spreadsheet applications using ExcelSim (c) 274_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Modelling a "random walk" 279_x000D_ _x000D_ _x000D_ _x000D_ Appendix 1 to Chapter 9: Incorporating risk analysis in the ICP Case Study 282_x000D_ _x000D_ Contents ix_x000D_ _x000D_ Appendix 2 to Chapter 9: Using the @Risk (c) (Palisade) Risk Modelling Program 285_x000D_ _x000D_ Further reading 289_x000D_ _x000D_ Exercises 290_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Valuing traded and non-traded goods in cost-benefit analysis 292_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 292_x000D_ _x000D_ _x000D_ _x000D_ Traded and non-traded goods 292_x000D_ _x000D_ _x000D_ _x000D_ Valuing traded and non-traded goods and services 293_x000D_ _x000D_ _x000D_ _x000D_ Worked example: domestic and international price structures 294_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Evaluation of an import-replacing project in real terms 294_x000D_ _x000D_ _x000D_ _x000D_ Evaluation of an import-replacing project in money terms 295_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Summary of the two approaches to valuation: border versus domestic prices 298_x000D_ _x000D_ _x000D_ _x000D_ Equivalence of the two approaches 298_x000D_ _x000D_ _x000D_ _x000D_ Determinants of the shadow exchange rate 302_x000D_ _x000D_ Appendix to Chapter 10: Shadow-pricing foreign exchange in the ICP case study 305_x000D_ _x000D_ Further reading 308_x000D_ _x000D_ Exercises 308_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Appraisal of the distribution of project benefits and costs 310_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 310_x000D_ _x000D_ _x000D_ _x000D_ Measuring the degree of inequality 311_x000D_ _x000D_ _x000D_ _x000D_ Alternative measures of income distribution 313_x000D_ _x000D_ _x000D_ _x000D_ Policies to change the income distribution 314_x000D_ _x000D_ _x000D_ _x000D_ The use of income distribution weights in project appraisal: some illustrative examples 314_x000D_ _x000D_ _x000D_ _x000D_ The derivation of distribution weights 316_x000D_ _x000D_ _x000D_ _x000D_ Distributional weighting in practice 322_x000D_ _x000D_ _x000D_ _x000D_ Worked example: Incorporating income distribution effects in the NFG Project 326_x000D_ _x000D_ _x000D_ _x000D_ Inter-temporal distribution considerations 327 Further reading 331_x000D_ _x000D_ Exercises 331_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Economic impact analysis 334_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 334_x000D_ _x000D_ _x000D_ _x000D_ Multiplier analysis 334_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The closed economy 334_x000D_ _x000D_ _x000D_ _x000D_ The open economy 339_x000D_ _x000D_ _x000D_ _x000D_ Crowding out 340_x000D_ _x000D_ _x000D_ _x000D_ Cost-benefit analysis of fiscal stimulus 341_x000D_ _x000D_ _x000D_ _x000D_ The employment multiplier 342_x000D_ _x000D_ x Contents_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Inter-industry analysis 342_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Inter-industry analysis and the national income multiplier 345_x000D_ _x000D_ _x000D_ _x000D_ Inter-industry analysis and employment 346_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ General equilibrium analysis 348_x000D_ _x000D_ _x000D_ _x000D_ Case study: The impact of the ICP Project on the economy 349 Appendix to Chapter 12: The annual economic impact of the_x000D_ _x000D_ Virginia Creeper Trail 350 Further reading 352_x000D_ _x000D_ Exercises 352_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Writing the cost-benefit analysis report 354_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Introduction 354_x000D_ _x000D_ _x000D_ _x000D_ Contents of the report 355_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ _x000D_ The Executive Summary 355_x000D_ _x000D_ _x000D_ _x000D_ The Introduction 355_x000D_ _x000D_ _x000D_ _x000D_ The Methodology 355_x000D_ _x000D_ _x000D_ _x000D_ The Analysis 356_x000D_ _x000D_ _x000D_ _x000D_ The Conclusion 356_x000D_ _x000D_ _x000D_ _x000D_ _x000D_ Other issues 357_x000D_ _x000D_ _x000D_ _x000D_ Appendix to Chapter 13: Report on International Cloth Products Ltd.: Spinning Mill Proposal 357_x000D_ _x000D_ Appendix 1: Case study assignments 371_x000D_ _x000D_ A1.1 South Australian Olive Oil Project 372 A1.2 Walnuts Tasmania Project 376_x000D_ _x000D_ A1.3 A tuna cannery in Papua New Guinea 380_x000D_ _x000D_ A1.4 Urban water supply in South-East Queensland 383_x000D_ _x000D_ A1.5 The Scottish Highlands and Islands remote dental care program 388 A1.6 The Defarian Early Childhood Intervention Program (DECIP) 392 A1.7 A pulp mill for Tasmania? 399_x000D_ _x000D_ A1.8 Qingcheng Water Project 403 A1.9 Highway Project 2012 409_x000D_ _x000D_ A1.10 International Mining Corporation (IMC) Copper Mining Project 416_x000D_ _x000D_ A1.11 Comparative Levelized Cost of Electricity: Renewables vs Coal_x000D_ _x000D_ A1.12 Cost-Benefit Analysis of the Proposed Repeal of Water Saving Regulations_x000D_ _x000D_ A1.13 Cost-Benefit Analysis of the Proposed Extension to the Mount Beno Walking Trail _x000D_ _x000D_ A1.14 Cost-Benefit Analysis of a Proposed Drug Court Program in the State of Euphoria, Federal Republic of Oz_x000D_ _x000D_ Appendix 2 Discount and Annuity Factors 424_x000D_ _x000D_ Glossary 427_x000D_ _x000D_ Index_x000D_ show more