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A review of some basic concepts of cost- & risk-benefit analysis in the context of toxic chemical regulation, with focus on several critical complexities inherent in the practical application of this methodology. The broad quantitative use of risk-benefit analysis can be an important aid to the decision-making process. However, the full-scale incorporation of a rigorous form of risk-benefit analysis into the regulatory process is inappropriate at this time & could have significant & unintended consequences. 29 References. HA.

The popularity of Public-Private Partnerships (PPPs), as a way for governments to get infrastructure built, continues to grow. But while the public is often led to believe that this is because they result in a more efficient use of taxpayer funds and a more streamlined process, this is not necessarily the case. In fact, the clearest advantage that PPPs offers is to politicians, who are able to transfer to private partners the risks of miscalculated construction costs and revenue projections (as with a toll road, for example). For taxpayers, the deals can often work out worse than if the government had simply pursued a fixedprice design-build Public Sector Alternative (PSA) arrangement. Even from the very start of the process, there are often a limited number of private consortia equipped to bid on major PPPs, which already leads to the potential for bidders to build in higher profits, and thus, higher costs for taxpayers. Nor are these private consortia oblivious to the risks they assume; they must therefore build into their bid an effective "insurance premium" to account for unforeseen delays and increased costs. The use of private debt to finance construction further inflates prices over a government's lower cost of capital. To an incumbent government, a key advantage of PPPs is the ability to avoid upfront costs, and let the private consortium arrange financing until the project is complete, allowing politicians to take the credit for new infrastructure while passing future maintenance and operating costs off onto future politicians, taxpayers and/or users. This, however, only provides both the incentive and bookkeeping artifice — since costs are incurred off the government's current balance sheet — for governments to build more infrastructure than might otherwise be justified. Advocates of PPP would argue that one clear benefit PPPs do offer the public is an impressive record of bringing in projects on time and on budget. It is true that the inflexibility of contracts and the financial risk transferred to the private partners have a powerful effect in keeping projects on track. However, the yardsticks by which the on-time and on-budget criteria are measured are typically flawed. The "start dates" of PPPs are marked after the conclusion of a lengthy negotiation and project-planning process between a government and a private consortium, making project completions seem more efficient than they really are. Meanwhile, the estimated cost of a project has a tendency to increase during that preliminary process. In other words, the delay and cost inflation that so often characterize traditional PSAs are not magically eliminated in a PPP: they just tend to occur prior to the first shovel breaking ground, rather than incrementally over the course of the project's construction. Ultimately, several of the problems common to traditional government PSA projects, and supposedly absent from PPP arrangements, are still there, only much harder to discern. The costs can be just as high, if not higher than with a fixed-price PSA, the timeframes can be just as lengthy, when the entire process is accounted for, and the amount of government resources tied up in the negotiation and planning process will often rival that of traditional procurement methods. Furthermore, all those risks that are supposedly transferred to private players are never truly transferred: The government is always the residual risk holder should the consortium somehow fail. From a policy standpoint, the measure of whether PPPs are worthwhile should be based not on whether they come in on time or on budget, but whether they increase social value relative to a PSA. There is, currently, no convincing evidence that they do.

AbstractAlthough governments worldwide are increasingly choosing to deliver services through organisations with greater autonomy than traditional bureaus, the implicit assumption that such agencification contributes to long-run efficiency remains largely untested. Agencification gives agency managers more autonomy and access to incentive mechanisms that lead to greater efficiency if they are not offset by inefficiencies resulting from managerial discretion. We test the hypothesis that agencification improves efficiency by examining the longer-run performance of 13 agencies in the province of Québec, Canada over approximately 10 years. We find that these agencies experienced long-term productivity gains, but that these gains reached a plateau over the time period studied. In addition, we describe changes in several measures of performance. A survey of the managers of these agencies indicates that they perceive agencification as having a substantive impact, but worry about the sustainability of autonomy and their capacity to show continued gains in measured performance over time.

There is very limited theory and policy guidance that specifically relates to multijurisdictional and multimodal (M&;M) infrastructure corridors: those that traverse national boundaries and encompass multiple modes of co-located infrastructure modes. This paper develops a framework for understanding the social welfare costs and benefits—and the barriers to implementing—these corridors. The framework posits the need for both a dedicated assembler and a national (or supranational) sponsor. An assembler provides the platform to match up initial property rights holders, infrastructure mode providers and end users. The sponsor financially and politically backstops an assembler. We decompose the economic necessity for, and advantages of, an assembler and also those that result from some degree of multimodality. We also consider the economic and political barriers to M&;M corridor implementation. To illustrate these, we review the evidence from the very small number of proposed or realised M&;M corridors and closely related projects. Although reliable evidence is scarce, it is consistent with the framework's implications regarding the need for both an assembler and a sponsor.

Public project appraisal using cost-benefit analysis (CBA) requires analysts to project risky net benefits and to convert these into present values using a social discount rate (SDR). We consider which types of risk matter for CBA. For small projects with only idiosyncratic risks, expected net benefits should be discounted at a risk-free SDR. If projects are large or expected net benefits are correlated with aggregate consumption, the alternatives are to replace expected net benefits with their certainty equivalents (CEs) and to discount these at a risk-free SDR, or to discount expected net benefits using a higher SDR that includes a risk premium. These methods are equivalent under special circumstances that are unlikely; the first approach is the correct one. We examine when replacing expected values with CEs will matter, and how this might be done. For most projects, analysts should discount expected values of net benefits at a risk-free SDR.

ABSTRACTThis paper addresses some of the gaps in both classification and theory pertaining to local government MEs and presents tentative predictions concerning the performance of local MEs. As a preliminary, we identify the different forms of entities with ME characteristics and place them within a comprehensive taxonomy. Most local MEs provide local public goods. Consequently, their primary goal should be to improve social welfare. This goal should drive both theory development and the evaluation of ME performance. We present three principal‐agent models that offer contrasting theories of ME performance with differing assumptions about the motivations and behaviour of the relevant actors: (1) a 'best of both worlds' model; (2) a 'worst of both worlds' model, and (3) a 'profit collusion world' model. We indirectly test these models by reviewing and assessing the empirical performance of MEs, focusing on their social welfare effects, or using related measures of performance where we have no direct evidence on social welfare effects. Finally, we draw on the theory and empirical evidence to make some predictions about the behaviour and performance of local MEs.

The decades-old literature on the correct method for choosing and
estimating a social discount rate (SDR) has resulted in two, largely
opposing viewpoints. This note seeks to clarify the key sources of
disagreement between these two camps. One view advocates that the choice
should be based chiefly on the social opportunity cost of the return to
foregone private capital investment (SOC), and suggests a SDR of around 7%.
The other viewpoint, expressed by the authors, argues that the choice should
be based on the social rate of time preference (STP), the rate at which
society is willing to trade present for future consumption, suggesting a SDR
of around 3.5%. Because of the fundamentally normative basis of the SDR
choice, neither approach generates testable hypotheses that would allow
falsification. For government project evaluation, the choice ultimately
depends on the opportunity cost of public funds, which in turn depends on
how fiscal policy actually operates. The STP approach contends that
governments set targets for deficits and public debt, so that a marginal
government project will be tax-financed, largely crowding out current
consumption. The SOC belief is that governments set revenue targets, so that
any government project will be deficit-financed on the margin, which will
largely crowd out private investment. The authors also argue that a SDR
based on the STP approach is appropriate for: benefit-cost analysis of
government regulations, self-financing government projects, and government
cost-effectiveness studies.

Recently, a number of authors, including Burgess and Zerbe, have recommended the use of a real social discount rate (SDR) in the range of 6–8% in benefit-cost analysis (BCA) of public projects. They derive this rate based on the social opportunity cost of capital (SOC) method. In contrast, this article argues that the correct method is to discount future impacts based on the rate of social time preference (STP). Flows in or out of private investment should be multiplied by the shadow price of capital (SPC). Using this method and employing recent United States data, we obtain an estimate of the rate of STP of 3.5% and an SPC of 2.2. We also re-estimate the SDR using the SOC method and conclude that, even if analysts continue to use this method, they should use a considerably lower rate of about 5%.

Recent interim guidelines of the Treasury Board Secretariat (2007) recommend a social discount rate (SDR) of 8 percent. This paper argues that this value is based on an inappropriate methodology and is too high. Using a consumption rate of interest and drawing on a growth model, we suggest that if a project is intragenerational (less than 50 years) and there is no crowding out of private investment, then analysts should use an SDR of 3.5 percent. Impacts on investment should first be converted to consumption equivalents using a shadow price of capital of 1.26. If the project has intergenerational impacts (beyond 50 years), such as those affecting climate change, we recommend a schedule of time-declining SDRs.