Economics of Cost-Benefit Analysis

Aaron Swoboda
Carleton College

Summary


The primary goal of this course is to teach you the technical details of economically sound cost-benefit analysis. In its most basic essence, cost benefit analysis is a means of choosing policies that yield the greatest economic output. At the end of this course you should be prepared to participate in the production of, and discussion surrounding, cost benefit analysis for projects concerning local, state, and federal governments as well as non-profit organizations.

Course URL: NA
Course Size:
15-30

Institution Type:
Private four-year institution

Course Context:

This is an intermediate-level course serving the economics and environmental studies majors. I expect roughly two-thirds of the students to be from these majors. Principles of Microeconomics is a pre-requisite while introductory statistics is recommended.

Course Content:

The course will focus on the economic concepts and steps of cost-benefit analysis. Topics include the microeconomic foundations of cost-benefit analysis, net present value, uncertainty and risk, option value, contingent valuation, hedonic analysis, shadow prices, and cost effectiveness. Extensive time will be spent discussing the role of data visualization in the presentation of cost-benefit analysis results. The beginning of course will be spent learning the theory, while the latter part of the course will be spent using the tools to conduct a cost-benefit analysis of a project aimed at reducing greenhouse gas emissions on tha Carleton campus.

Course Goals:

My goals for the students in this course include:
  • Learn the relevant steps of a cost-benefit analysis.
  • Understand the important assumptions in a cost-benefit analysis.
  • Construct a relevant model for a simple cost-benefit analysis project.
  • Conduct a Monte Carlo simulation to explore the sensitivity of model results.
  • Learn and adapt relevant data visualization techniques to present the results of cost-benefit analysis.

Course Features:

The course works to develop the skills relevant to cost-benefit analysis consumption and production. The beginning of the course will be spent learning the economic theory behind cost-benefit analysis. These skills will be deployed when students read and critique examples of cost-benefit analyses. Extensive time will be spent discussing the role of data visualization in the presentation of cost-benefit results. The latter part of the course will be spent conducting a cost-benefit analysis of a project attempting to reduce greenhouse gas emissions on the Carleton campus. Students will gain hands-on skills constructing economic models, testing the sensitivity of these models through Monte Carlo simulations, and creating data visualizations to represent the results of the analysis.

Course Philosophy:

The ultimate goal of the course is to give students the tools and confidence to engage in cost-benefit analysis. The course is designed to provide scaffolding from where they enter the classroom, with perhaps only a first course in microeconomics, to the final project conducting some form of cost-benefit analysis in small teams. The course is structured to constantly challenge students to move higher within Blooms Taxonomy of Learning.

Assessment:

Students will be assessed through frequent quizzes, larger exams, oral presentations, a final poster presentation, and a collaborative written report.

Syllabus:

Syllabus (Acrobat (PDF) 93kB Nov8 10)

Teaching Materials:

assignment handout (Acrobat (PDF) 78kB Nov8 10) assignment handout (Acrobat (PDF) 28kB Nov8 10)

References and Notes:

Cost-Benefit Analysis: Concepts and Practice by Anthony Boardman, David Greenberg, Aidan Vining, and David Weimer. Prentice Hall / Pearson. 3rd Edition. 2005.