2016 Conference - Session 4

Session 4 - Thursday, March 17, 3:45 - 5:15pm

A.4: Accounting for External Environmental Benefits

Chair: Patrick Walsh, US Environmental Protection Agency

Presentations:

1.     Air Pollution and Defensive Expenditures: Evidence from Particulate-Filtering Facemasks, Junjie Zhang,* University of California, San Diego and Quan Mu

Rational individuals take preventive measures to avoid costly air pollution exposure. This paper provides new empirical evidence of pollution avoidance that Chinese urban residents purchase particulate-filtering facemasks against ambient air pollution. The analysis is conducted with detailed and comprehensive data available on daily facemask purchases and air quality that became available only very recently. We find that this transitory air pollution avoidance behavior exhibits dynamics and nonlinearities, with significant increases of facemask purchases during extreme pollution episodes. The daily model shows that a 100-point increase in Air Quality Index (AQI) increases the consumption of all masks by 54.5 percent and anti-PM2.5 masks by 70.6 percent. The estimates from the aggregated model with flexible pollution levels are used to simulate the benefit of air quality improvement. If 10 percent of heavy pollution days (AQI<=201) were eliminated, the total savings on facemasks alone would be approximately 187 million USD in China. This result suggests that reducing the occurrence of “airpocalypse'' events represents a significant opportunity to improve social welfare. Nevertheless, our estimates are likely only the lower bound of the benefit of clean air because facemasks can only partially reduce the negative health effects of air pollution and the costs of other avoidance behaviors are not included.

2.     Adding the Scenic Benefits to a Green-Roof Cost-Benefit Analysis, Väinö Nurmi,* Finnish Meteorological Institute; Athanasios Votsis; Adriaan Perrels; and Susanna Lehvävirta

This presentation shares a green roof cost-benefit analysis. Green roofs are roofs that are partially or completely covered by vegetation. Here, we discuss the benefits and costs of lightweight self-sustaining vegetated roofs. We also review the state-of-art in the subject and compare our findings to relevant literature. The chosen valuation methods are applied first in Helsinki, Finland. Then we show how the results can be transferred to other urban locations.

Green roofs offer various kinds of ecosystem services, many of which are scarce in urban areas. These services accrue benefits to urban residents. The benefits include increased lifespan of the roof, energy cost reductions due to increased isolation and cooling, improved storm-water management, better air quality, improved noise insulation, scenic benefits, and improved biodiversity. The benefits can be further classified into private benefits (benefits the owner of the property) and public benefits (benefits the population of the area). Both the literature review and the results of this study show that private benefits are not high enough to justify the expensive investment for the private decision-maker. However, when the public benefits are added into the private benefits, social benefits are higher than the costs of green roofs in most cases.

Past research in this subject has quantified most of the benefits, excluding scenic and biodiversity benefits. In this study, special emphasis is placed on the valuation of scenic benefits; these are among the hardest to valuate in monetary terms. We employ hedonic pricing theory implemented via spatial regression models, and GIS-based green roof implementation scenarios, in order to estimate the aggregate willingness-to-pay for a “unit” of green roof (m^2). Our results show that the scenic value can be a significant attribute in cost-benefit calculations – when added into the cost-benefit analysis, the social benefits were larger than social costs in all cases.

3.     Valuing Ecosystem Services from Coastal Wetlands: Benefits and Costs of Protection from Storm Surge, Margaret Walls,* Resources for the Future and Celso Ferreira

Wetlands and other natural lands in coastal areas can provide a wide range of ecosystem services. One of the most important may be protection from hurricane storm surge-related flooding. The dense vegetation and shallow water within wetlands tends to slow the movement of surge inland and the vegetation dissipates waves, thereby reducing the amount of destructive wave energy that propagates on top of surge and worsens its impacts. As the climate warms, scientists predict that the worst hurricanes will increase in frequency along the Atlantic coast of the U.S., thus wetlands and other coastal natural lands may become more valuable in the future. In this paper, we integrate state-of-the-art mathematical modeling of storm surge and waves with a careful economic valuation exercise to calculate the value of coastal protective services from wetlands and other natural lands. Our study region is the Maryland counties on the Atlantic coast and bordering the Chesapeake Bay and its tidal waters. We combine results from surge and wave simulations using the ADCIRC+SWAN hydrodynamic and wave models, calibrated to the Chesapeake Bay, with detailed information on property values and land cover. Our benefit-cost exercise evaluates alternative land conservation, and wetlands restoration, scenarios; our measure of benefits is avoided economic losses due to property damages from hurricane flooding and the opportunity costs of permanently protecting, or restoring, those lands is our measure of costs. We evaluate benefits and costs under alternative scenarios for the location of wetlands conservation/restoration and under alternative future population growth scenarios, including the location of new households in the region. The research highlights how the value of ecosystems service is highly dependent on (i) the size, location and characteristics of wetlands, (ii) the track and intensity of storms, and (iii) the location of households and value of property that the wetlands are protecting.

4.     Accounting for Externalities: Toward Benefit-Cost Analysis in Electricity Ratemaking, Denise Grab* and Richard L. Revesz, Institute for Policy Integrity, NYU Law School

As the social welfare implications of energy policy decisions become clearer, state utility commissions have begun re-evaluating their approaches to benefit-cost analysis. Traditionally, utility commissions have conducted their analyses of proposed policies from the perspectives of only certain stakeholders—for example, utilities under the Utility Cost Test, or consumers under the Ratepayer Impact Measure test. In recent years, utility commissions have begun to recognize the significant effects that their decisions may have on entities other than just ratepayers and utilities. Climate change has become especially salient, as electricity policy decisions can affect greenhouse gas emissions, and, in turn, climate change can exacerbate challenges to electricity grid resiliency. Given the increased attention on these and other externalities, a number of utility commissions have begun to recognize the importance of conducting benefit-cost analysis from a broader societal perspective that considers a proposal’s effects on both suppliers and consumers, as well as externalities.

However, even the leading states that have begun incorporating externalities into their assessments diverge from regulatory analysis best practices reflected in Office of Management and Budget guidance and federal agency practice. For example, the Social Cost Test used by many states fails to maximize social welfare because it is structured as a ratio-based test, rather than a net present value calculation, and therefore can mask the effect of scale for proposed policies. Some states include only selective externalities in their analyses, rather than all important indirect costs and benefits. Some states use inappropriately high discount rates for societal effects.

This presentation will examine the history of utility commissions’ use of benefit-cost analysis tests, the approaches that commissions are taking to update their benefit-cost analysis tests in the face of a changing world, and additional steps that commissions can take to improve their benefit-cost analyses in order to maximize social welfare.

B.4: Retrospective Benefit-Cost Analysis

Chair: Stuart Shapiro, Rutgers University

Presentations:

1.     A Retrospective Benefits-Cost Analysis of Applying Sex Offender Registration and Notification Laws to Juveniles, Richard Belzer,* Regulatory Checkbook

State and federal governments have enacted laws to reduce the incidence of sex offenses committed against children. These include New Jersey’s Megan’s Law, the Jacob Wetterling Act, the federal Megan’s Law, and the Adam Walsh Act. These laws established programs for the registration of sex offenders, and systems for notifying the public about the schools they attend, the places they work, and the homes in which they live. Advocates expected these regulations would deter future sex crimes, make it easier to identify and apprehend recidivist offenders who commit new sex crimes, and enable the public to better protect itself. Though juvenile offenders were not the intended target of these laws, the Adam Walsh Act explicitly brought them under the federal regulatory umbrella. Experts in child and adolescent psychology appear fairly united in the belief that this was a mistake, because juvenile and adult offenders are different, and egregiously harmful to juveniles caught in the web.

This paper summarizes a retrospective benefit-cost analysis of the application of registration and reporting requirements to juvenile offenders. No such analyses were prepared prior to the enactment of any of these laws, and no credible retrospective benefit-cost analysis appears to have been published over the intervening decades. Registration alone is estimated to yield annual net benefits of zero to -$1 billion. Public notification appears to produce no social benefits at all and impose about $10-$40 billion in annual costs. Juvenile offenders and their families bear a substantial fraction of these costs. However, most cost is borne by offenders’ neighbors in the form of reduced property values. The extent to which net benefits are negative is highly uncertain due to limited information quality concerning juvenile sex offenses, no systematic estimates of costs imposed on offenders, and only a few hedonic studies of property value effects.

2.     Retrospective Benefit-Cost Analysis of the Cooperative Interstate Shipment Program, Flora Tsui,* US Department of Agriculture, Food Safety and Inspection Service

On May 2, 2011, USDA/FSIS published the final regulation to implement the cooperative interstate shipment (CIS) program. Under the new program, certain state-inspected establishments with 25 or fewer employees can apply to be selected and be eligible to ship meat and poultry products across the state-lines. The state in which the establishments reside must be already administering a cooperative state meat or poultry inspection (MPI) program and enforce food safety requirements “at least equal to” those under the Federal inspection program.

Using data from FY2011-2014, we examined the benefits and costs of the CIS program for its early stage performance. In particular, we compared the actual costs and benefits associated with the CIS program to date to those that we estimated in the Final Regulatory Impact Analysis (FRIA). We concluded that: (1) the program attained the benefits foreseen in the FRIA; (2) both the participating states and the Agency have kept the costs down, so the costs were below what FRIA estimated; and (3) with a total cost of the program being around $0.92 million, and a host of benefits including a $3.17 million sales revenue increase for the participating establishments, the program at this stage is cost-effective. This case study also highlighted the importance of retrospective BCA for regulations under which participation is voluntary and uncertain, and where the impact can be difficult to quantify ex ante in the prospective BCA.

3.     The Costs and Benefits of OSHA Standards over 45 Years, John Mendeloff,* University of Pittsburgh

Have health and safety regulatory standards varied over time in their cost per unit of loss? This cost will vary as a function of the costs of reducing particular hazards and the levels that the standards are set at, which reflect the value placed on the risk reduction. One can think of many reasons why these costs might have varied:1) Presidents vary in their support for more protective regulation. 2) Earlier standards may have addressed “low-hanging fruit,” which could lead to higher costs over time per unit of risk reduction. 3) New technologies could make risk reductions cheaper. 4) Rising incomes could justify higher valuations on reductions in risk.

5) Most directly, agencies and the White House could change the valuations that they use to establish or review new standards or the methods that affect them. In addition, newer information may result in better estimates of the always uncertain figures available when the decisions were made.

There have been only a few efforts to track the changing costs of new standards over time. This paper presents estimates of the cost per fatality equivalent prevented for Occupational Safety and Health Administration (OSHA) health standards from 1972 through 2014. Estimates are presented both by individual standard and by Presidential administration. Estimates of the magnitude of the health benefits over these periods are also presented. The paper also develops a method for converting non-fatal occupational health effects into fatality equivalents. This paper does not attempt formal tests of the impact of the factors listed above, but it does offer preliminary thoughts, and provide the raw data necessary for further examination. In brief, we find that the cost per FEP has declined over time and that, surprisingly, most of the health effects were generated during Republican Administrations.

4.     Retrospective Benefit-Cost Analysis of EPA's Renewable Fuel Standard, Sofie Miller,* The George Washington University Regulatory Studies Center

The Renewable Fuel Standard (RFS), which requires gasoline refiners to blend specific amounts of ethanol into transportation fuel, was created to reduce both American dependence on foreign oil and domestic gasoline consumption. When the Environmental Protection Agency (EPA) issued rules implementing the RFS in 2010, RFS was expected to reduce carbon dioxide emissions by 2.34 million annual tons. However, new information about the environmental effects of biofuels and trends in energy prices have come to light since the RFS program was first authorized. This retrospective benefit-cost analysis uses new estimates of the carbon impact of renewable fuels and actual data on gasoline production and consumption to update EPA’s initial estimates of the benefits and costs of the renewable fuel program.

C.4: Methods for Estimating Costs

Chair: Richard Williams, Mercatus Center at George Mason University

Discussant: Julia Marasteanu, US Food and Drug Administration

Presentations:

1.     A Method of Estimating Costs of Food Safety Interventions in the Meat and Poultry Industries, Catherine Viator,* RTI International; Mary Muth; and Jenna Brophy

As the regulatory agency responsible for the safety of meat and poultry products, the U.S. Department of Agriculture’s Food Safety and Inspection Service is required to conduct regulatory impact analyses of food safety-related regulations. This study developed estimates of the costs of food safety investments that can be used in conducting analyses of upcoming food safety regulations. The estimated costs apply to food safety investments incurred prior to slaughter – also known as pre-harvest – and during slaughter operations. The investments included in the study were animal vaccinations; vermin control and eradication; developing, validating, and reassessing food safety and sampling plans; food safety training for new employees; antimicrobial equipment and solutions; sanitizing equipment; third-party audits and certifications; and microbial tests. We collected cost inputs for initial and annual costs from two in-person expert elicitations, web searches, and contacts with vendors, and used these data to estimate capital equipment, labor, materials, and other costs associated with the investments. We developed separate estimates by establishment size (small and large) and species (beef, pork, chicken, and turkey), when applicable. For example, the cost of developing food safety plans can range from approximately $6,000 to $87,000 per establishment, depending on the type of plan and establishment size. Animal vaccinations cost between $1.32 and $8.42 per animal, depending on the type of animal and vaccination. The costs of third-party audits range from approximately $13,000 to $24,000 per audit, and establishments are often subject to multiple audits per year. These cost estimates can be multiplied by the number of establishments required to comply with a regulatory requirement for comparison to the estimated health benefits. Knowing the cost of these investments will allow analysts to better assess the cost-effectiveness of regulatory alternatives in future rulemaking.

2.     Estimating Welfare Costs of Shared Tax Bases, William Hoyt,* University of Kentucky

There has long been interest in “horizontal” fiscal externalities, the impacts of policies of one government (municipality, state, or federal) on the policies of others at the same level, and the possibility of competition among governments as a result. More recently there has developed a literature on “vertical” fiscal externalities. Vertical fiscal externalities arise when the policies of one level of government, for example, states, affect the policies of another level of government such as the federal government. Classic example are the impacts of changes in state (or federal) tax rates on the federal (state) tax revenues on shared tax bases such as income, tobacco, and motor fuels. The empirical literature on vertical tax externalities has generally focused on estimating reaction functions, that is, how tax policy of one level of government affects the tax choices of the other level of government (Devereux et al. (2007), Anderson et al. (2004), More and Sole-Olle (2001), Brulhart and Jametti (2006), Goodspeed (2000)). With few exceptions (Goodspeed (2000), Dahlby and Wilson (2004)) there have been few attempts to estimate the extent of these vertical fiscal externalities. While shared tax bases, such as taxation of the same commodity, will generate negative fiscal externalities, Hoyt (2015) shows that in a more general model, in which some tax bases are shared and others are not, these fiscal externalities need not be negative, depending on the cross-tax base elasticities. This being the case, the common wisdom, that tax bases should not be shared, is not necessarily correct. Here, an estimate of the extent of these vertical fiscal externalities is estimated using data on U.S. state and county tax revenues. Key to this study is the estimation of cross-tax base elasticities enabling the determination of a broader measure of fiscal externalities than previously considered.

3.     Evaluation of Societal Costs of Damage to Buried Infrastructure in Quebec (Canada), Nathalie de Marcellis-Warin,* Harvard T. Chan School of Public Health; and Ingrid Peignier

Vast networks of conduits and cables lie underground, delivering products and services to today’s society. Underground infrastructures include telecommunication and electrical cables, gas conduits, sewers, water lines, drainage systems, oil pipelines, etc. The increasing number of networks, along with the fact that they are buried not far from the ground’s surface translate into contractors striking them frequently while doing excavation or rehabilitation work of all kinds.

In 2014, there was an average of 5 damaged underground infrastructures per day in Quebec (Canada). In 35 percent of cases the intervention of municipal emergency services was required and 84 percent resulted in service interruptions (Source: Info-Excavation, 2014). The general purpose of this research is to identify and quantify not only the direct costs, but to also assess indirect costs entailed by damages done to underground infrastructure in the province of Quebec. The study will be used towards damage prevention and as an incentive for best practices amongst contractors, municipalities and owners of underground infrastructures and clients.

Four specific objectives have been established to carry out the research project: (1) Develop a typology for damage related direct and indirect costs for underground infrastructures. (2) Quantify total related costs for four types of damages to underground infrastructures in the province of Quebec and estimate the ratio between direct costs and indirect costs. (3) Develop an assessment methodology for damage related indirect costs for the province of Quebec and assess the total indirect costs for 2014. (4) Examine Quebec’s database to identify key factors behind damages, leading to a more effective damage prevention program.

Case studies were used to illustrate the evaluation methods regarding different types of costs and to assess the ratio between indirect and direct costs. These case studies are meant to represent damages to underground infrastructures in the province of Quebec.

D.4: Valuing Health Investments

Chair: Suhui Li, The George Washington University

Presentations:

1.     Adjusting the Measurement of the Output of the Medical Sector for Quality: A Review of the Literature, Anne Hall,* Bureau of Economic Analysis

In January 2015, the Bureau of Economic Analysis (BEA) released the first version of the health-care satellite account, which redefines the good being measured in health care output from a single service to an episode of treatment of a specific medical condition. This change follows multiple recommendations by the Committee on National Statistics and by international authorities on national accounting as applied to medical care. BEA now faces the intensely difficult problem of how to adjust the price indexes for the quality of health care. In this paper, I review and summarize a number of previous papers that created quality-adjusted price indexes for individual medical conditions. It divides them into those that use primarily outcomes-based adjustments and those that use only process-based adjustments. Outcomes-based adjustments adjust the indexes based on observed aggregate health outcomes, usually mortality. They usually do so by calculating a concept called net value, which is the monetized value of the improved health outcome minus the increased spending on the condition. Process-based adjustments adjust the indexes based on the treatments provided and medical knowledge of their effectiveness. Outcomes-based adjustments are easier to implement while process-based adjustments are more demanding in terms of data and medical knowledge. I then calculate outcomes-based adjustments using the net value method for the indexes in the health-care satellite account with mortality by cause of death with data from the Centers for Disease Control and Prevention. They show that improved outcomes in diseases of the circulatory system created positive net value and declining inflation for those conditions but most other categories of diseases exhibit increasing inflation because spending on them is higher than the value of the improved outcomes.

2.     Economic Costs of Oral Care in the United States, Uma Kelekar,* Marymount University

The paper employs a variety of methodologies to estimate the direct and indirect costs associated with oral care and treatment in the United States in 2014. It combines research findings from the medical, economics, and the epidemiology literature in order to lay out the direct dental and medical (non-dental) costs associated with oral care. Cost savings in the treatment of systemic diseases, pregnancy, and pneumonia are reported. Additionally, it attempts to quantity what, if any, savings can result from efficiency-enhancing reforms to the oral health delivery system. The financial implications of preventive strategies, specifically dental sealants and early detection of oral cancer are also discussed in this paper. All the cost estimates are consolidated to present a few estimates of return on investment in oral care. In conclusion, it discusses the findings within the context of the population needs, and existing public policy on dental coverage.

3.     BCA in the Outcome Evaluation of Small Biomedical Research Portfolios, Sue Hamann,* National Institutes of Health; Joseph Cordes, George Washington University; Timothy Iafolla; and Sarah Glavin

Science evaluators are increasingly asked to include economic variables and econometric analyses in their evaluation of the outcomes and impacts of federally funded research. The National Institutes of Health (NIH) recently convened an expert, external panel to consider the broad area of assessing the value of biomedical research; the panel put forward an overarching assessment and measurement framework that included health care costs as an output and health care related cost savings as an outcome (Scientific Management Review Board, 2014). Two recent econometric outcome studies from NIH (Battelle, 2011; Roth et al., 2014) demonstrated large economic returns on investments in NIH. Because econometric modeling to measure returns on investment in federally funded biomedical research is relatively recent, there are critical questions to be considered, including the identification of relevant direct and indirect economic costs related to health, the identification and measurement of federal biomedical research costs, and the attribution of changes in health outcomes to federally funded research.

In this presentation, we consider the feasibility and utility of including benefit-cost analyses to the outcome evaluation of small research portfolios in oral health: dental sealants, early childhood caries, validated cell lines in head and neck cancers, and oral HPV infection. For each portfolio, at least one peer-reviewed publication was available that advanced specific claims as to economics or epidemiology of oral health conditions or treatment. We examine, from an econometric perspective, the credibility of each specific claim and then explore measures for evaluating the contribution of the research portfolios to the claimed economic benefits. We also identify the aspects of biomedical research portfolios that facilitate or inhibit econometric modeling.

4.     Exploring the Effect of Life Expectancy on Cross-Country Comparisons of The Ratio of VSL to Income, Dean Jamison,* University of Washington, and Angela Chang, Harvard University

Due to the lack of value per statistical life (VSL) studies conducted in low- and middle-income countries (LMICs), researchers commonly extrapolate from a VSL of a high-income country by applying income elasticity to the income ratio. While it is evident that the VSL would increase as income increases, there is less consensus on what the right income elasticity is when transferring the VSL to LMICs. In addition to income, another key difference between the two populations is their life expectancies, and some have suggested that people may be willing to pay less for mortality risk reduction given fewer years of remaining life expectancy. It is unclear whether income elasticity accounts for the difference in life expectancy for populations facing different mortality risks. Given the lack of empirical data and consensus on the appropriate theoretical framework, we are interested in the relationship between income elasticity and life expectancy. Starting with the U.S. VSL, we derive two VSL estimates for other countries: the first set uses the ratio of gross domestic product per capita between the U.S. and each country, and a range of income elasticity is applied. The second set of VSL is extrapolated using the ratio of remaining life expectancy at age 35. The two sets of VSL estimates allow us to derive two ratios of VSL-to-income for all countries. We explore the relationship between these two sets of ratios by applying different functional forms and comparing their correlation coefficients. Our findings suggest that, depending on the level of income elasticity and appropriate functional form, there is high correlation between the two ratios. Given the limited number of VSL studies in LMICs and lack of consensus on the appropriate theoretical framework, we propose a simple and defensible analysis to shed light on the relationship between life expectancy and income elasticity.

E.4: Benefit Cost Analysis and International Trade

Chair: Douglas Scheffler, US Coast Guard

Presentations:

1.     Costs and Benefits Of Regulating and Restricting Chemicals: The European Union’s REACH System and its Impacts on Austria, Michael Getzner* and Denise Zak, Vienna University of Technology

The European Union’s regulation for chemical safety (REACH) addresses the registration, evaluation, assessment, and admission (or banning) of chemicals which are potentially harmful for both public health and the environment. Enforced in the EU member states since 2008, the REACH system has been evaluated regarding economic impacts (chemicals production, employment) as well as in terms of costs and benefits equally for companies, households, and society as a whole.

However, reliable evidence on economic costs and benefits of the REACH system is scarce since there are still huge gaps in natural sciences, especially in the fields of the diverse impacts of chemicals on human health and the environment. The current study deals with such an assessment of costs and benefits of REACH for Austria under uncertainties, and draws on a wide range of databases on public and workplace health, chemical accidences in households, and potential environmental impacts of harmful chemicals.

The uncertainties of valuing costs and benefits with respect to chemicals policies, of course, do not lie only in scarce natural sciences evidence but also in the economic valuation of health effects, especially with regards to, for instance, diverse allergies possibly connected with chemicals, as well as Multiple Chemical Sensitivity (MCS).

The approach of this CBA of the REACH system in Austria therefore rests on a wide range of conservative scenarios and estimations regarding the (positive) human health effects of restricting chemicals, and on the economic valuation of these health effects. Projected over a period of about 30 years, it turns out that the REACH system is efficient, and leads to net benefits for the Austrian economy even under the most conservative scenarios and assumptions. This CBA thus provides strong evidence for the positive effects of the REACH system even though many benefits are highly uncertain or unknown.

2.     The Importance of Benefit-Cost Analysis in Decision-making, Kristina Gogic,* Office of the Croatian Ombudsman

Benefit Cost Analysis is simply rational decision-making, yet it remains a controversial regulatory tool. As a relatively simple and widely used technique for deciding whether to make a change, BCA might be the most efficient decision framework in efficiency terms: a successful decision occurs when total expected costs are less than total expected benefits; that's logical and results in the most profitable option. Each analysis is different and demands careful and innovative thought.

BCA is very important in political and governmental decisions. The European Commission uses BCA as a basis for decision-making on the co-financing of major projects included in operational programs (Ops) of the European Regional Development Fund (ERDF) and Cohesion Fund. They made Strategy for Europe 2020 through a new guide to BCA of Investments projects (2014.-2020.). The objective of the guide reflects a specific requirement for the European Commission to offer practical guidance on major project appraisals, as embodied in the cohesion policy legislation for the noted period.

Since 2007, the level of investments in the EU has dropped off by about 15 percent, as a consequence of the economic and financial crisis, so this Strategy was necessary and the European Union Investment Plan. Here we can see the importance of BCA, which the European Commission used for this purpose.

BCA is very important tool. An individual can make decisions "ad hoc" but big companies, Governments and, in this case, the European Commission, must conduct deeper analysis before deciding: from fiscal point of view, local point of view, social point of view, EU Member States point of view (in a mentioned case), provincial point of view, and of some others.

3.     A Benefit-Cost Analysis of the Trade Adjustment Assistance (TAA) Program that Accounts for the Value of Free Trade, Peter Schochet,* Mathematica Policy Research; and Sarah Dolfin

The Trade Adjustment Assistance (TAA) program has been a linchpin of Federal efforts since 1964 to help America’s manufacturing workers rebound from job losses experienced from foreign competition. The program aims to help affected workers obtain reemployment at a suitable wage by providing training, wage subsidies, and temporary income (TRA) support, among other services. This paper presents findings of a benefit-cost analysis of the TAA program based on a large-scale quasi-experimental impact evaluation of the program using survey and administrative records data from 26 states. TAA benefits were measured as the increased output of participants, reduced use of training and reemployment services not funded by TAA, and reduced receipt of UI and public assistance benefits. We measured the costs of TAA as program outlays for TRA benefits, training, allowances, health coverage tax credits, wage supplements, and administration. Program benefits were compared to program costs from the perspectives of society, TAA participants, and the rest of society.

An innovation of the analysis was to value TAA’s effects in the facilitation of free trade—a frequently cited rationale for the program. For this analysis, we used the literature from trade economics to obtain an estimate of the value of improvements in free trade, and made assumptions about the extent to which the TAA program is responsible for promoting free trade policies, partly by examining spikes in the mention of “TAA” in major newspapers and the media during major trade agreement negotiations.

We find that without considering the benefits of TAA stemming from the possibility that it promotes free trade, the net benefit to society of the TAA program was negative $53,802 per participant. However, we find that if TAA makes even a relatively modest contribution to the ease of enacting free trade policies, the program’s total benefits would outweigh its costs.

4.     Analysis of Benefit-Cost Analysis in the US and EU Agricultural Sectors, Daniel Perez,* GW Regulatory Studies Center

This paper analyzes the similarities and differences in the use of benefit-cost analysis for regulations affecting the agricultural sectors of the U.S. and the E.U., in an attempt to identify areas of opportunity and strengths that both trade partners can incorporate into the analytical models they use to develop regulation. Trade between the U.S. and E.U. accounts for around 40 percent of global flows in goods and services – nearly half of global GDP - and agriculture accounts for a large part of traded goods between the U.S. and the E.U. where significant barriers to trade still exist. Recent efforts to eliminate remaining barriers to trade include negotiation of the Transatlantic Trade and Investment Partnership (TTIP), whose goals include going beyond traditional tariff reduction by focusing on improved regulatory cooperation. However, cooperation will be all the more difficult if regulations are being developed using substantially different analytical models to inform policymakers.

Political decisions and domestic preferences account for much of the divergence in U.S. and E.U. regulatory outcomes. Although complete regulatory convergence or harmonization between both trading partners is unlikely, both sides stand to benefit from efforts regarding convergence of the analytical foundations that inform regulatory decision-making. Consistent and high-quality benefit-cost analysis could help avoid unnecessary regulatory divergence or point out areas of opportunity for agencies to expand good regulatory practices.