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Does uncertainty make cost-benefit analysis pointless?
Örebro University, Örebro University School of Business. The Swedish National Road and Transport Research Institute (VTI).
Department of Transport Science, KTH Royal Institute of Technology.
(English)Manuscript (preprint) (Other academic)
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-49425OAI: oai:DiVA.org:oru-49425DiVA: diva2:912665
Available from: 2016-03-18 Created: 2016-03-17 Last updated: 2017-10-17Bibliographically approved
In thesis
1. Cost-Benefit Analysis of climate policy and long term public investments
Open this publication in new window or tab >>Cost-Benefit Analysis of climate policy and long term public investments
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This compilation dissertation consists of four essays with the common theme of welfare analysis of long-term public investments. The first two essays focus on analysis of climate change mitigation, i.e., the social cost of carbon dioxide. The third essay focuses on cost-benefit analysis (CBA) of transport investment projects, while the last essay takes a broader perspective on welfare analysis.

Essay 1: The Temporal Aspects of the Social Cost of Greenhouse Gases. The purpose of Essay 1 is to investigate the temporal aspects of the social cost of greenhouse gases. I find that the calculation period should ultimately be modeled to be consistent with the discount rate and that the “global-warming potential” concept is unsuitable for calculation of the social cost of GHGs other than carbon dioxide.

Essay 2: Avoiding path dependence of distributional weights: Lessons from climate change economic assessments. In Essay 2, I explore shortcomings in income weighting in evaluation of climate change policy. In short, in previous versions of two of the most important existing models, regional economic growth is double counted. The proposed alternative approaches yield about 20–40% higher values of SCCO2 than the old approach.

Essay 3: Does uncertainty make cost-benefit analyses pointless? In Essay 3, the aim is to investigate to what extent CBA improves the selection decision of projects when uncertainties are taken into account, using a simulation-based approach on real data of infrastructure investments. The results indicate that, in line with previous literature, CBA is a rather robust tool and considerably increases the quality of decision making compared with a random selection mechanism, even when high levels of uncertainty are considered.

Essay 4: Household Production and the Elasticity of Marginal Utility of Consumption. In Essay 4, I develop a new model to show that omission of household production in a previous model leads to bias when the elasticity of marginal utility of consumption, EMUC, is estimated. I further offer new, unbiased estimates based on current evidence of the included parameters, suggesting a lower bound of EMUC at about 0.9.

Place, publisher, year, edition, pages
Örebro: Örebro university, 2016. 33 p.
Series
Örebro Studies in Economics, ISSN 1651-8896 ; 32
Keyword
Social Cost of Carbon, Greenhous Gases, Distributional weights, Discounting, Cost benefit analysis, Elasticity of Marginal Utility of Consumption, Risk aversion
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-48241 (URN)978-91-7529-127-7 (ISBN)
Public defence
2016-04-08, Hörsalen, Musikhögskolan, Örebro universitet, Fakultetsgatan 1, Örebro, 13:15 (Swedish)
Opponent
Supervisors
Available from: 2016-02-15 Created: 2016-02-15 Last updated: 2017-10-17Bibliographically approved

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