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On non-marginal cost-benefit analysis

Dietz, Simon and Hepburn, Cameron (2010) On non-marginal cost-benefit analysis. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, 18. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, London, UK.

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Abstract

Conventional cost-benefit analysis incorporates the normally reasonable assumption that the policy or project under examination is marginal in the sense that it will not significantly change relative prices. In particular, it is assumed that the policy or project does not change the underlying growth rate of the economy. However, these assumptions may be inappropriate in some important circumstances, such as large development projects in small economies, or large-scale infrastructure investment programmes. This paper develops the theory on the evaluation of non-marginal policies and projects, with an empirical application to the mitigation of global climate change. We examine the conditions under which evaluation of a non-marginal project using marginal methods may be both qualitatively and quantitatively wrong, and explore the magnitude of the potential error using a commonly employed integrated assessment model of climate change.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/Home.aspx
Additional Information: © 2010 The Author
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HC Economic History and Conditions
Journal of Economic Literature Classification System: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation; Social Discount Rate
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 18
Date Deposited: 26 Jul 2011 10:52
URL: http://eprints.lse.ac.uk/37591/

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