But, in practice, the analysis requires more complex economic and financial computation, sometimes economists also consider empirical studying methods. For that reason, a series of basic principles is desired as a guide.
A common measurement unit In order to reach a pertinent conclusion with regard to the usefulness of a project, all its positive or negative costs and benefits have to be recorded in a common measurement unit, the most convenient one being money, have to be adjusted with the inflation rate and to be calculated in present values.
A program sismologic suisse anti-imbatranire provide benefits that are not directly measured in money, such as time saved by the travelers, increased security and the reduced injuries, the human lives saved because of a motorway public project. The question of how this benefits can be measured in money arises. In the last decade, in Boston Rosen et al. A main part of this project was a new motorway whose cost sismologic suisse anti-imbatranire 6,5 billion dollars.
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It has been estimated that, once that motorway was build, the trip from the town to the airport would be reduced from 45 minutes to 8 minutes. It is here where the great challenge of measuring saved time emerges. A way to estimate the time value is to make use of theS income — free time theory.
People who have control over the number of labor hours, would work untill the individual valuation of free time equals the net hourly income. If the valuation of free time is greater than the income, there would be less work, cutting down the leisure marginal benefit. But if 9 Financial and monetary policies in European Union free time valuation is lesser, people would work harder and the leisure marginal benefit increases, because the free time diminishes.
In a perfect labor force market, that allows independent adjustment of sismologic suisse anti-imbatranire hours, the time value is always the income, even when a fraction of sismologic suisse anti-imbatranire saved time due to better conditions on the motorway is used for recreation.
Jonathan Gruber names this method the market — based method and the tool used is the net income Gruber,p. Although this approach is useful, it has two major limits. Firstly, people can not freely adjust the working hours and the leisure time and, secondly, not all free time values are equivalent.
To avoid more time on the motorway, a person who dislikes driving is ready to pay a sum of money that exceeds the net income.
This can mean a greater valuation of the time spent at the office than the net income.
More sismologic suisse anti-imbatranire, it can be valued the fact that there is a comfortable enviroment. In such wise, the complete satisfaction from the job exceeds the income.
The value of the free time is composed of that complete satisfaction, not only the tangible part, the income being lesser than time saved total benefit. Another method for valuing time saved is to analyze the choice from different means of transportation that imply different time travel.
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Suppose that in a certain community, people can commute to work by bus or by train. The train travels faster, but it is more expensive. Figuring out the sum of money they are willing to pay extra to travel by train, it can be estimated how much they are willing to pay to reduce commuting time, giving this way a value for time.
The evaluation of a human life is the most difficult aspect of the cost-benfit analysis. The first method of valuation is the market-based method or lost earnings method, which refers to determining the present value of the future cash-flows. If a person dies because of a certain project, the cost sismologic suisse anti-imbatranire society is exactly the expected present value of the earnings that sismologic suisse anti-imbatranire would have achieved.
The problem with this method is that using the income as future cash-flows, each moment that is not spent working is not valued, the method being rejected by most economists. The second method is the survey-based method, that questions individuals in order to find out how they value their own lives. This of course is a puzzling question, a more general approach being addressing questions regarding aspects that can change the probability of death. For example Rosen et al.
The reason this distinction is so important is that although people consider their lives have an infinite value, they constantly accept death probability increases for limited sums of money. A person driving a smaller and lighter car is exposed to a greater probability of death from a car accident than another in a bigger and heavier car, all other aspects being identical.
People sismologic suisse anti-imbatranire willing to accept an increase in the sismologic suisse anti-imbatranire risk because of the money saved from buying a cheaper car.
The third method for valuing the human life is based on the risk preference, depending on the choice made. Some jobs have a death probability greater than other. Bringing into comparison two workers that have identical qualifications for the job, regarding education, experince, etc.
Human life can be given a value by estimating the price 10 Theoretical and Applied Economics. Supplement 11 people would pay to reduce their death probability, this price being the difference between the two revenues. It is considered that people have all the information and are able to identify the risks and express their risk-award preferences. Another method for measuring the human life refers to the governmental preference and this new approach is not based on the values given by each person, but encounters, on the other hand, the existing governamental programs and how much it is spent for saving cele mai bune produse anti-îmbătrânire pentru anii 50. The fact the government is prepared sismologic suisse anti-imbatranire spend great sums of money for public safety suggests the sismologic suisse anti-imbatranire sector values human lives at a very high level.
The Canadian Government uses a method based on statistics, which takes into account the numbers and the nature of the accindents, calculates the treatment costs and the income-loss costs, extrapolating afterwards for all the injured population Treasury Board of Canada Secretariat, Even though the majority of people state that there can not be established a price for a human life saved, this being priceless, unfortunately, the world has limited resources and the only question sismologic suisse anti-imbatranire this situation is if there are being used rational means for setting up the prices.
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Discounting costs and benefits and choose the discount rate Generally, costs and benefits occur in time and in order to be sumed up and compared, to obtain a relevant net benefit concerning the financing of the public investment project, all benefit and costs flows have to be discounted at a particulare moment.
The present value of a future sum of money, defined as the maximum sum a person is willing to pay today in order to have sismologic suisse anti-imbatranire right to receive it in the future, can be obtained using a simple algebra exercise, but the one that meets difficulties is choosing the sismologic suisse anti-imbatranire of discount.
The discount rate chosen by the private sector needs to reflect an investment rate for alternative investment projects. The question here is whether this rate can be also used by the public sector.
If the government establishes its calculation on the private sector opportunity cost, the best alternative is putting the money in the private sector. Another approach is that public expenditures valution takes into consideration the social discount rate, which measures the value society puts on the consumption sacrificed in the present.
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The social discount rate is lesser, for a few reasons. Firstly, in theory, the government cares about the future generations. The private sector allocates few resources for savings, applying a high discount rate for the future earnings. For a more accurate choice of the rate of discount, usually, the sensitivity analysis is used in order to see the way different rates of discount influence the decision.
And so forth, in the cost-benefit analysis the risc and incertitude have been included.
Over time, governments have used a variety of discount rates, depending sismologic suisse anti-imbatranire the tipe of the public investment project to implement. Sismologic suisse anti-imbatranire Office recommendation to use both rates leads to observing the outcomes and the significant differences.
Reflecting sismologic suisse anti-imbatranire cost-benefit analysis evaluation using outcomes of consumers and producers behavior The benefit and cost evaluations should reflect the preferences of past choices. If people can choose between parking their car closer to their destination for a fee of 50 cents and walking five minutes and choose to pay and save time and effort, then they showed that time is more important than 10 cents per minute.
If they were indifferent between the two options, then they would have revealed the value of time was exactly 10 cents per minute. A great challenge of the cost-benefit analysis is finding a past choice that would reveal such transactions and equivalences for preferences.
For example, when an improved motorway reduces the travelling time and the injury risk, the houses value in that area may rise. The increase in the houses value as a result of the project is a good approach, at least as a principle, to measure the benefits. But, if the increased value is already counted, there is no need for the value of the time and human lives saved as a result of the improved motorway to be counted.
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The value of houses has increased because of the time saved and reduced risks. To include both increases, the value of the houses plus the time saved and reduced risks, would result in double accounting. All this being said, we can conclude that cost-benefit analysis is much more than an algebra exercise, requires heavy study, comparison over time, entailing many fields, not only finance.
Theoretical and Applied Economics. Supplement 13 Bibliography Cullis, J. Fondurile structurale — instrumente de creştere economică în cadrul politicilor de coeziune şi convergenţă regională Lipsey, Chrysral Avuţia Naţiunilor, Editura Universitas, Chişinău, vol.
II Stiglitz, J.