Social cost-benefit analysis

What is Social Cost-Benefit Analysis (SCBA)?

A framework used to evaluate projects and policies based on their total value to society rather than only technical performance or financial

What is the main purpose of SCBA?

To incorporate social, environmental and long term impacts into decision-making

Name 3 steps involved in stakeholder analysis.

1. Identifying all relevant groups

2. Understanding their incentives

3. Assessing how costs and benefits are distributed

What is the basic SCBA calculation?

Net Social Benefit (NSB) = Total benefits - Total costs

Name 3 major SCBA pillars.

1. Economic foundations: focus on discounting future costs and benefits

2. Data and assumptions: results depend on data quality and transparency of assumptions

3. Quantification techniques: engineers contribute through technical measurement of impacts like emissions and infrastructure performance

What are tangible and intangible impacts:

• Tangible impacts: measurable financial outcomes

• Intangible impacts: hard-to-quantify outcomes

What are 4 ways SCBA improves policymaking?

1. Through transparency and trade-offs

2. Through accountability through measurable outcomes

3. Through risk assessment

4. Through structured cost estimation

How is discounting in SCBA defined?

Discounting reflects the principle that money today is worth more than money in the future because it can generate returns

What 4 things does the discount rate reflect?

1. Opportunity cost of capital

2. Market interest rates

3. Government guidelines

4. Project risk

How is the Net Present Value (NPS) calculated?

By discounting future benefits and costs and summing them

What is the decision rule for NPV?

• NPV > 0 : Accept

• NPV < 0 : Reject

What are the 3 main financial indicators used in SCBA?

1. Net Present Value (NPV): measures total net social benefit and is considered the primary decision metric (total value)

2. Internal Rate of Return (IRR): represents the discount rate at which NPV becomes zero (profitability rate)

• Decision rule: accept if IRR exceeds the discount rate

3. Benefit-Cost Ratio (BCR): measures efficiency per unit of cost (efficiency comparison)

• Decision rule: accept if BCR > 1

Name 2 welfare criteria.

1. Pareto efficiency: a change is beneficial if at least one person benefits without harming others

2. Kaldor-Hicks criterion: a project is beneficial if winners could theoretically compensate losers

What are 3 welfare measurement tools?

1. Consumer surplus: difference between willingness to pay and actual payment

2. Producer surplus: benefit producers receive above costs

3. Rule of half: used to estimate welfare changes from price ranges

Which 3 effect types are distinguished by SCBA?

1. Direct effects: immediate impacts in the main market, such as price changes or service improvements

2. Indirect effects: secondary impacts across related markets such as productivity improvements

3. External effects: impacts outside markets such as environmental effects or social inclusion

Name 2 non-market goods characteristics.

1. Non-excludable

2. Non-rivalrous

What are the 2 main valuation approaches?

1. Total Economic Values (TEV): captures both use and non-use values

2. Life Cycle Analysis (LCA): measures environmental impacts across the full project lifecycle

What are the 3 types of SCBA timing?

1. Ex-ante: before implementation

2. Ex-post: after implementation

3. In-medias-res: during implementation

What does sensitivity analysis test?

How results change when assumptions vary

What are the 3 main methods for sensitivity analysis?

1. Partial sensitivity analysis: changes one variable at a time

2. Scenario analysis: examines combinations of assumptions

3. Monte Carlo simulation: uses probabilistic modeling

Name the 3 key equity concerns in SCBA.

1. Intergenerational equity: future generations cannot influence current decisions but bear consequences

2. Distributional effects: costs and benefits may affect groups unevenly

3. Transparency: technical complexity may exclude stakeholders

Name 3 methods to address equity.

1. Distributional weighting: assigning greater importance to disadvantaged groups

2. Multi-criteria analysis: combining monetary and non-monetary impacts

3. Stakeholder participation: including affected communities