Chapter 11 Cost benefit analysis

11.1 Intertemporal welfare economics

11.2 Project appraisal

11.3 Cost-benefit analysis and the environment

Learning objectives

         learn about the conditions necessary for intertemporal efficiency

         revisit the analysis of optimal growth introduced in Chapter 3

         find out how to do project appraisal

         learn about cost–benefit analysis and its application to the environment

         be introduced to some alternatives to cost–benefit analysis

Cost-benefit analysis

Cost-benefit analysis, CBA, is the social appraisal of marginal investment projects, and policies, which have consequences over time

It uses criteria derived from welfare economics, rather than commercial criteria.

CBA seeks to correct project appraisal for market failure

Environmental impacts of projects/policies are frequently externalities, both negative and positive

CBA seeks to attach monetary values to external effects so that they can be taken account of along with the effects on ordinary inputs and outputs to the project/policy

CBA is the same as BCA – Benefit-cost analysis.

Intertemporal efficiency

)C,(CUU

)C,(CUUB

1

B

0

BB

A

1

A

0

AA

(11.1)

An allocation is efficient if it is impossible to make one individual better off without thereby making the other worse off.

Intertemporal efficiency requires the satisfaction of 3 conditions

Equality of individuals’ consumption discount rates

Equality of rates of return to investment across firms

Equality of the common consumption discount rate with the common rate of return

Given that CBA is concerned with consequences over time, and based in welfare economics, a key idea is that of intertemporal efficiency.

Discount rate equality

MRUS 0, 1AC c 0, 1

BC cMRUS = otherwise one could be made better off without making the other

worse offA

C1C0,r 1MRUSA

C1C0,≡ defines A’s consumption discount rate

Then the first intertemporal efficiency condition is stated as

rA=rB = r (11.2)

Note: consumption discount rates are not constants.

Shifting consumption over time

1 0

0

C I

I

1ΔC

ΔC

ΔC

ΔCΔC

ΔC

)ΔC(ΔCδ

0

1

0

01

0

01

1 s

Foregoing Cb0Ca

0 makes Ca1Cb

1 available next period. The rate of return to, on,investment is defined as

where ΔC1 is the second period increase in consumption, Ca

1Cb1,

resulting from the first period increase in investment ΔI0, Cb

0Ca0.

For ΔI0 = ΔC0, this is

which is the negative of the slope of the transformation frontier minus 1, which can be written

where s is the slope of the frontier.

Rate of return equality

, 1,...,i i N

If each firm were investing as indicated by C01b and C0

2b, then period 1 consumption could be increased, without loss of period 0 consumption, by having firm 1, where the rate of return is higher, increase investment by the amount firm 2, where the rate of return is lower, reduced its investment.

Only where rates of return are equal is this kind of period 1 gain impossible. For N firms, the second intertemporal efficiency condition is

(11.3)

Equality of discount rate and rate of return

If the first two conditions are satisfied, we can consider representative individual and firm.

Point a corresponds to intertemporal efficiency, b and c do not as from either could reallocate consumption as between periods so as to move on to a higher consumption indifference curve.

At a the slopes of the consumption indifference curve and the consumption ttansformation frontier are equal. The third condition is

r (11.4)

Intertemporal optimality

As in the single period situation, the intertemporal efficiency conditions do not fix a unique intertemporal allocation.

That requires a social welfare function with utilities as arguments

Will consider this under ‘Optimal growth models’

Markets and intertemporal efficiency – futures markets

Futures Markets

X at t is treated as a different commodity from X and t+1

For N commodities and M periods there are MN dated commodities. Contracts are written at the start of the first period for trades an all commodities at all future dates.

Then, it is effectively the static case.

Given that all ideal circumstances apply in all MN markets, the conditions for intertemporal efficiency will be satisfied.

Futures markets are, in fact, rare – standardised raw materials, financial instruments.

Markets and intertemporal efficiency – loanable funds market

Loanable Funds Market

b

b

P

Pxi

x is the bond coupon paid on the first day of period 1

Pb is the price the bond trades for on the first day of period 0

i is the interest rate

A seller is a borrower

A buyer is a lender

Individuals - utility maximisation

UU is a consumption indifference curve, slope –(1+r)

Line C1max C0

max is the budget constraint, slope –(1+i)

Optimum is at C*0 in period 0 and C*1 in period 1, where

r = i

which will hold for all individuals, satisfying the first intertemporal efficency condition

Firms – present value maximisation

Owners of firms can shift consumption by

investing in firm

dealing in the bond market

AB shows C0 C1 combinations on account of

varying investment, slope –(1+ δ), δ is the rate of return to investment

RS with slope -(1+i) shows how consumption can be shifted via bond market dealing.

The optimum level of investment is at a, where the present value of the firm is maximised, and where

i = δ

In the second stage the owner maximises utility, by bond market dealing, at b where

i = r

All owners so act, and the three conditions for intertemporal efficiency are satisfied.

Optimal growth modelling; discrete time

A representative individual model for two periods

Maximise

0 1

1

1W U C U C

subject to

Q0(K0) – (K1 – K0) = C0 (11.5b)

Q1(K1) – (K2 – K1) = C1 (11.5c)

(11.5a)

Here the efficiency problem is trivial – consumption in one period can only be increased by reducing it in the other period.

A necessary condition is 1

0

1

1C

C

U

U

(11.6)

So with diminishing marginal utility, C1 greater than C0 implies that ρ (the utility discount rate) is less then δ (the rate of return on investment). For ρ = δ, consumption is constant.

Optimal growth modelling: continuous time

dt)eU(CWt

0t

ρt

t

.

K

Maximise

Subject to

= Q(Kt) - Ct

.

C

C

U

U

(11.7a)

(11.7b)

has necessary condition

(11.8)

where ρ is a parameter, the utility discount rate, and δ is a variable, the rate of return to capital accumulation. For δ > ρ, given diminishing marginal utility, C is growing. Consumption growth ceases when δ = ρ.

Optimal growth in the basic model

A model with resource input to production

dt)eU(CWt

0t

ρt

t

.

,t t tK Q K R C .

tS R

Maxximise

Subject to

(11.9a)

(11.9b)

(11.9c)

In this model intertemporal efficiency is not trivial.

There are two forms of investment, in capital and in the resource stock.

Efficiency requires that the rates of return on the two are equal.

See chapter 14 especially

Utility and consumption discount rates 1

Figure 11.8 Indifference curves in utility and consumption space

0 1

1

1W U C U C

0

11/ 1C

C

U

U

00

11

11 1

1/ 1CC

CC

UUr

UU

intertemporal welfare function for panel a

slope of WCWC in panel b

(11.10)

Utility and consumption discount rates 2

r g (11.11)

In continuous time

where

r is the consumption discount rate

ρ is the utility discount rate

η is is the elasticity of marginal utility for the instantaneous utility function

g is the growth rate

For g>0 r> ρ and r would be positive for ρ = 0

For g = 0 r = ρ

1 2

0 2PV ...1 1 1

TE T

E E EE

i i i

0 1

Ttt

E

i

1 2

0 2PV ...1 1 1

TR T

R R RR

i i i

0 1

Ttt

R

i

0 0

NPV PV PV1 1

T TtT

R E t t

ER

i i

1 2

0 2NPV ...1 1 1

TT

N N NN

i i i

0 1

Ttt

N

i

Private project appraisal – the Net Present Value test 1

(11.14)

(11.15)

The project should go ahead iff NPV≥0

The present value of expenditures E is

The present value of receipts R is

The present value of the project is

(11.16)

Which for N = R - E is

(11.17)

Private project appraisal – the Net Present Value test 2Year Expenditure Receipts Net cash flow

0 100 0 –100

1 10 50 40

2 10 50 40

3 10 45.005 35.005

4 0 0 0

Table 11.2 Example net cash flow 1

at i = 0.05, NPV = £4.6151

at i = 0.075, NPV = £0

at i = 0.10, NPV = -£4.27874

The NPV of a project is the amount by which it increases the firm’s net worth. It is the present value of the surplus, after financing the project, at the end of the project lifetime.

Private project appraisal - risk

Year Net cash flow 1 Probability 0.6

Net cash flow 2 Probability 0.4

0 –100 –100

1 40 35

2 40 35

3 35.005 25

4 0 0

Year Expected net cash flow Present value of expected cash flow

0 –(0.6 x 100) + {–(0.4 x 100)} = –100

–100

1 (0.6 x 40) + (0.4 x 35) = 38 38/1.075 = 35.35

2 (0.6 x 40) + (0.4 x 35) = 38 38/1.0752 = 32.88

3 (0.6 x 35.005) + (0.4 x 25) = 31.003

31.003/1.0753 = 24.96

4 (0.6 x 0) + (0.4 x 0) = 0  

Expected NPV

–6.81

Table 11.4 One project, two possible cash flows Table 11.5 Calculation of expected NPV

Where the firm is prepared to assign probabilities, the criterion for going ahead with the project is the expected NPV – the probability weighted sum of the mutually exclusive cash flow outcomes.

This assumes that the decision maker is risk-neutral

Chapter 13 on decision making in the face of imperfect knowledge of the future.

Social project appraisalCBA is the social appraisal of projects

CBA uses the NPV test

CBA can be approached in two ways

As an extension of private appraisal where externalities are taken into account

In terms of social welfare enhancement

The first stages of CBA are

proper project/policy identification

forecasting all of the consequences of the project/policy for all of the affected individuals in each year of the project/policy lifetime

Then

expressing consequences in terms of monetary gains/losses for aggregation to an NPV number

  Time period

Individual 0 1 2 3 Overall

A NBA,0 NBA,1 NBA,2 NBA,3 NBA

B NBB,0 NBB,1 NBB,2 NBB,3 NBBB

C NBC,0 NBC,1 NBC,2 NBC,3 NBC

Society NB0 NB1 NB2 NB3  

Social appraisal: an illustrative project

Table 11.6 Net benefit (NB) impacts consequent upon an illustrative project

31 2

0 2 3

NBNB NBNPV NB

1 1+r 1+rr

Tt

0tt

t 0r)(1

NBNPV (11.19)

Generally, go ahead if

CBA as a potential pareto improvement testA positive NPV indicates that, with due allowance for the dating of costs and benefits, the project delivers a surplus of benefit over cost. The consumption gains involved are greater than the consumption losses, taking account of the timing of gains and losses. The existence of a surplus means that those who gain from the project could compensate those who lose and still be better off.

Finance by taxation – two periodsThe initial investment is ΔI0, equal to -ΔC0, and the consumption increment on account of going ahead with

the project is ΔC1. First period consumers lose an amount ΔC0, equal to ΔI0, and second period consumers

gain ΔC1, and the question is whether the gain exceeds the loss. From the viewpoint of the first period, the

second period gain is worth ΔC1/(1+r), so the question is whether

ΔC1/(1+r) > ΔI0 (11.20)

  is true, which is the NPV test discounting at r.

Finance by borrowing – two periodsThe government funds the project by borrowing and the project displaces the marginal private sector project with rate of return δ. In this case the cost of the public sector project is ΔI0 in the first period plus δΔI0 in the

second, this being the extra consumption that the private sector project would have generated in the second period. In this case, from the viewpoint of the first period, the gain exceeds the loss if:

(11.21) This is the NPV test with the consumption gain discounted at the consumption rate of interest, and compared with the cost of the project scaled up to take account of the consumption that is lost on account of the displaced private sector project. 

r1

δΔIΔI

r1

ΔC0

0

1

CBA as welfare increase test 1  Time period

Individual 0 1 2 3 Overall

A ΔUA,0 ΔUA,1 ΔUA,2 ΔUA,3 ΔUA

B ΔUB,0 ΔUB,1 ΔUB,2 ΔUB,3 ΔUB

C ΔUC,0 ΔUC,1 ΔUC,2 ΔUC,3 ΔUC

Society ΔU0 ΔU1 ΔU2 ΔU3  

Table 11.7 Changes in utility (∆U) consequent on an illustrative project

W = W(UA,0,..., UC,3) positive – the project should go ahead

Or with an intratemporal social welfare function mapping individual utilities into a social aggregate Ut

W = W(U0, U1, U2, U3) positive – the project should go ahead

where a widely entertained particular form is

3

3

2

21

0 ρ)(1

ΔU

ρ)(1

ΔU

ρ1

ΔUΔUΔW

is exponential discounting

CBA as welfare increase test 2

Utility variations consequent on going ahead with the project cannot be estimated. But, using the methods of chapter 12, monetary equivalent gains and losses can be estimated.

  Time period

Individual 0 1 2 3 Overall

A NBA,0 NBA,1 NBA,2 NBA,3 NBA

B NBB,0 NBB,1 NBB,2 NBB,3 NBBB

C NBC,0 NBC,1 NBC,2 NBC,3 NBC

Society NB0 NB1 NB2 NB3  

T

0tt

t

CUρ1

1W

T

0tt

t

Cr1

1W

1U

ρ)U(1r

Ct

1Ct

or r = ρ + ηg (11.23)

implies

where

(11.22)

or

CBA as welfare increase test 3

T

0tt

t

Cr1

1W

The NPV test is interpreted as a test that identifies projects that yield welfare improvements - positive and negative consumption changes, net benefits that is, are added over time after discounting, so that

(11.24)

and for ΔW > 0 the project is welfare enhancing and should go ahead

Finance by taxation two periods

10ΔC

r1

1ΔIΔW

(11.25)

where the rhs is NPV, positive for ΔC1/(1+r) > ΔI0

Finance by borrowing, two periods

If the project crowds out the marginal private sector project

r1

δΔI

r1

ΔCΔIΔW 01

0(11.26)

where the rhs is NPV, positive if

r1

δΔIΔI

r1

ΔC0

0

1

Choice of discount rate 1

There is disagreement about the discount rate that should be used in CBA

This matters because the result of the NPV test can be very sensitive to the number used for the discount rate.

This is especially true where the project lifetime is long, as it often is with projects with environmental consequences – the lifetime is when the longest lasting consequence ceases, not when the project stops yielding the benefits which were its purpose – nuclear electricity generation and waste products.

  Time Horizon

Years

Discount rate % 25 50 100 200

0.5 88.28 77.93 60.73 36.88

2 60.95 37.15 13.80 1.91

3.5 42.32 17.91 3.21 1.03

7 18.43 3.40 0.12 0.0001

Table 11.8 Present values at various discount rates

For £100 at futurity shown

Choice of discount rate 2With no market failure r = i = δ

Given market failure which to use?

Generally agreed that whichever way looking at CBA – potential pareto improvement or welfare enhancing – should use r, the consumption discount rate.

Shadow pricing

While it is agreed that r should be used to discount, δ appears in the NPV criterion as

r1

δΔIΔI

r1

ΔC0

0

1

(11.21) and

r1

δΔI

r1

ΔCΔIΔW 01

0 (11.26)

which apply with finance by borrowing when there is crowding out – δ is there to adjust the initial cost, shadow price it, for the displacement of the marginal private sector project.

At one time it was thought that, on account of crowding out, proper shadow pricing of all inputs and outputs was important in CBA. And difficult.

Now the dominant view is that given international capital mobility, crowding out is not a problem – that the supply of capita for private sector projects could be treated as perfectly elastic.

Shadow pricing is not now seen as necessary in CBA

Choice of discount rate 3 – descriptive versus prescriptive

Regarding CBA as about potential pareto improvement aligns with the descriptive approach to determining a number for r – it should be the post tax return on risk free lending reflecting the rate at which people are willing to exchange current for future consumption.

Those who regard CBA as a test for welfare enhancement tend to adopt the prescriptive approach to a number for r, according to

r = ρ + ηg (11.23)

where

ρ is the utility discount rate

η is the elasticity of the marginal utility of consumption

g is the growth rate

Some economists want to get values for ρ and η from observed behaviour, some from ethical considerations.

Much of the controversy among economists over the Stern Review of the climate change problem focussed on the numbers used in (11.23) – Stern took an ethical prescriptive position

Box 11.2 Discount rate choices in practice

US Office of Management and Budget

7% as an estimate of pre-tax return on capital

US Environmental Protection Agency

For intragenerational – descriptive, r as 2-3%

For intergenerational - r = ρ + ηg with ρ = 0 on ethical grounds, gives r 0.5% to 3%

HM Treasury UK

‘Green Book’ instructions based on r = ρ + ηg – ‘evidence’ suggests ρ = 1.5%, η = 1 and g = 2% giving r = 3.5%.

Years ahead 31-75 76-125 126-200 201-300 301+

Discount rate 3.0% 2.5% 2.0% 1.5% 1.0%

For lifetimes greater than 30 years

because of ‘uncertainty about the future’

The Stern Review

Implicit r of 2.1% from r = ρ + ηg with ρ = 0.1%, η = 1, and g = 2%.

Environmental cost-benefit analysis

Look at wilderness area development.

With Bd for development benefits and Cd for development costs, and ignoring environmental impact

0 0 0

NPV1 1 1

t T T Tt t t t

t t tt

d d

B C B C

r r r

B C

Denote this as NPV’. Then the proper NPV taking account of environmental impacts is

NPV = Bd – Cd – EC = NPV’ – EC (11.27)

where EC is the present value of the stream of the net value of the project’s environmental impacts over the lifetime of the project.

EC stands for Environmental Cost

From (11.27) the project should go ahead if

NPV’ = Bd – Cd > EC (11.28)

Inverse ECBA

A wilderness development project should not go ahead if

EC ≥ NPV’ = Bd – Cd

so that

EC* = NPV’ = Bd – Cd (11.29)

defines a threshold value for EC. For EC ≥ EC* the project should not go ahead.

The exercises ( Chapter 12 ) that seek to ascertain EC are typically expensive, and sometimes controversial. Consideration of EC* can put their results in perspective.

As can consideration of EC*/N, where N is the size of the relevant affected population, which is not necessarily restricted to visitors, and may include people from a wider area than the host country, as with an internationally recognised wilderness/ conservation area inscribed as ‘world heritage’.

Box 11.3 Mining at Coronation Hill?

In 1990 there emerged a proposal to develop a mine at Coronation Hill in the Kakadu national park, which is listed as a World Heritage Area. The Australian federal government referred the matter to the Resource Assessment Commission, which undertook a very thorough exercise in environmental valuation using the Contingent valuation Method, implemented via a survey of a sample of the whole Australian population. This exercise produced a range of estimates for the median willingness to pay, WTP, to preserve Coronation Hill from the proposed development, the smallest of which was $53 per year. If it is assumed, conservatively, that the $53 figure is WTP per household, and this annual environmental damage cost is converted to a present value capital sum in the same way as the commercial NPV for the mine was calculated, the EC to be compared with the mine NPV' is, in round numbers, $1500 million. This 'back of the envelope' calculation assumes 4 million Australian households, and a discount rate of 7.5%.

  It was pointed out that given the small size of the actual area directly affected, the implied per hectare value of Coronation Hill greatly exceeded real estate prices in Manhattan, whereas it was 'clapped out buffalo country' of little recreational or biological value. In fact, leaving aside environmental considerations and proceeding on a purely commercial basis gave the NPV' for the mine as $80 million, so that the threshold per Australian household WTP required to reject the mining project was, in round numbers, $3 per year, less than one-tenth of the low end of the range of estimated household WTP on the part of Australians. Given that Kakadu is internationally famous for its geological formations, biodiversity and indigenous culture, a case could be made for extending the existence value relevant population, at least, to North America and Europe.

In the event, the Australian federal government did not allow the mining project to go ahead. It is not clear that the CVM application actually played any part in that decision.

The Krutilla-Fisher model 1NPV is the result of discounting and summing over the project’s lifetime an annual net benefit stream

which is NBt = Bd,t – Cd,t – ECt (11.30) where Bd,t, Cd,t and ECt are the annual, undiscounted, amounts for t = 1, 2,..., T, and where T is the project

lifetime, corresponding to the present values Bd, Cd and EC. The environmental costs of going ahead with the project, the ECt, are at the same time the environmental benefits of not proceeding with it. Instead of EC t we could write B(P)t for the stream of environmental benefits of preservation.4 If we also use B(D)t and C(D)t for the benefit and cost streams associated with development when environmental impacts are ignored, so that B(D)t – C(D)t is what gets discounted to give NPV, then equation 11.30 can also be written as:

 NBt = B(D)t – C(D)t – B(P)t (11.31)

0

NPV { }/ 1T

t

t t tB D C D B P r

0

NPV { }T rt

t t tB D C D B P e dt

0 0

NPV { }T Trt rt

t t tB D C D e dt B P e dt

(11.32)

Switching to continuous time, instead of

we use

which can be written as

The Krutilla-Fisher model 2

Krutilla-Fisher (1975) argued that value of wilderness services relative to those of development outputs will increase over time due to

substitution possibilities wrt development output

technical progress in development activities

income elasticity of demand for wilderness services, fixed in supply

Assume preservation benefits grow at rate a -

0 0NPV { } { }

T Trt at rtB C e dt Pe e dt (11.33)

0

NPV NPVT r a tPe dt

which with B and C for constant flows of development benefits and costs, and Peat as the growing flow of preservation benefits, can be written

(11.34)

For given NPV’, a>0 reduces NPV – a development is less likely to pass the NPV test if the Krutilla-Fisher arguments hold

For a = r means preservation benefits effectively not discounted

a>r means effective negative discounting on preservation benefits

The Krutilla-Fisher model 3Let T for two reasons

For a constant flow of x, the present value is x/r

For wilderness impacting projects, T will generally be very large

For T , (11.34) becomes

NPV = NPV’ – P/(r-a) (11.35)

a For r = 0.05 For r = 0.075

0 20 13.33

0.01 25 15.37

0.02 33.33 18.18

0.03 50 22.22

0.04 100 28.57

0.05 40

0.06   66.67

0.075  

Table 11.9 P/(r-a) for P =1

Discount rate adjustment?

Working with a lower discount rate does not always favour preservation.

dtePdteC}{BNPVT

0

a)t(rT

0

rt

dtePdteDNPVT

0

a)t(rT

0

rt

DNPV=

P

r r a

With D for net development benefits

For large T this is approximated by

(11.36)

With X for start-up costs

NPVD P

Xr r a

(11.37)

X = 1000, D = 75, P = 12.5.

For a = 0. r = 0.055 gives NPV = 136.37, r = 0.045 gives NPV = 388.89 – lowering the discount rate increases NPV

For a = 0.025. r = 0.055 gives NPV = -53.03, r = 0.045 gives NPV = 41.66 – lowering the discount rate makes the project viable.

Objections to environmental cost-benefit analysis

ECBA is based in welfare economics which is consequentialist and subjectivist.

Essentially it accepts that the natural environment should be subject to consumer sovereignty

Two main classes of objection at the level of principle.

1. Accept that only human interests count, but reject consumer sovereignty as proper guide to those interests on the grounds of

inadequate information about consequences

insufficiently deliberative

lacking self-knowledge

preference shaping

2. The interests of other living entities should be taken into account

Some question the ECBA agenda at the level of practice – can Chapter 12 methods actually deliver the necessary information?

Limits to applicability of ECBA -sustainability and environmental valuation

There is no guarantee that the subjective assessment of their utility losses by individuals will be large enough to stop a project that threatens resilience, and thus sustainability.

Implicit in ECBA is the assumption of ‘weak’ sustainability, which ignores critical natural capital and non-substitutabilities as between reproducible and natural capital.

ECBA should be restricted in its application

Alternatives to environmental cost-benefit analysis

Two stage processes

Assessment of consequences – Environmental Impact Assessment, Impact Assessment, Social Impact Assessment. ( Assessment = estimation )

This can be left to ‘experts’

Evaluation of consequences

Not to be left to experts

Multi-criteria analysis

Deliberative polling

Citizens’ juries

An illustrative transport problem

  A. Highway B. Highway and Buses C. Railway

Cost 106£ 250 300 500

Time Saving 106 hours per year 10000 8000 6000

CO2 Emissions 103 tonnes per year 1000 800 200

Wildlife and Amenity Qualitative Bad Bad Moderate

The results of the impact assessment are

Table 11.10 Options for reducing traffic delays

Cost effectiveness analysis gives priority to one aspect of performance - select the option that achieves specified objective at least cost. For minimum acceptable time saving 8000 million hours per year, A over achieves and costs less than B.

MCA - weighted sums 1

There are several forms of MCA according to how evaluations on different criteria are combined to choose an option – weighted sums is the simplest.

  A. Highway B. Highway and Buses C. Railway

Cost 106£ 250 300 500

Time Saving 106 hours per year 10000 8000 6000

CO2 Emissions 103 tonnes per year 1000 800 200

Wildlife and Amenity Qualitative Bad Bad Moderate

Bad Moderate Slight

3 2 1

  A. Highway B. Highway and Buses C. Railway

Cost 106£ 250 300 500

Time Saving 106 hours per year 10000 8000 6000

CO2 Emissions 103 tonnes per year 1000 800 200

Wildlife and Amenity Qualitative 3 3 2

MCA – weighted sums 2

Convert the data to dimensionless form, so as to permit aggregation. This is done by expressing the criterion outcome for each option as a ratio to the best outcome for the criterion which is set equal to 1. Gives the dimensionless evaluation table:

  Highway Highway and Buses Railway

Cost 1.0000 0.8333 0.5000

Time Saving 1.0000 0.8000 0.6000

CO2 Emissions 0.2000 0.2500 1.0000

Wildlife and Amenity 0.6667 0.6667 1.0000

Costs 0.3

Time Saving 0.3

CO2 Emissions 0.2

Wildlife and Amenity 0.2

  Highway Highway and Buses

Railway

Cost 0.3000 0.2500 0.1500

Time Saving 0.3000 0.2400 0.1800

CO2 Emissions 0.0400 0.0500 0.2000

Wildlife and Amenity 0.1333 0.1333 0.2000

Sum 0.7733 0.6733 0.7300

For weights

multiplying dimensionless evaluation table and summing gives

This ranks options

1. Highway

2. Railway

3. Highway and buses

MCA – weighted sums 3

Costs 0.2

Time Saving 0.2

CO2 Emissions 0.4

Wildlife and Amenity 0.2

For weights

  Highway Highway and Buses

Railway

Cost 0.2000 0.1667 0.1000

Time Saving 0.2000 0.1600 0.1200

CO2 Emissions 0.0800 0.1000 0.4000

Wildlife and Amenity 0.1333 0.1333 0.2000

Sum 0.6133 0.5600 0.8200

get

and the ranking is

1. Railway

2. Highway

3. Highway and buses

Deliberative polling

1. Run an opinion poll

2. Get respondents to a meeting to collectively consider the issues by hearing and questioning expert witnesses, and debating ( deliberation )

3. Get respondents to respond again to original survey

Given that the idea is to poll a random sample of sufficient size to produce results of standard expected in opinion polling, 100’s, the deliberative part of the exercise is expensive.

Deliberative polling is rare.

Citizens’ juries

Citizens’ juries involve the public in their capacity as ordinary citizens with no special axe to grind. They are usually commissioned by an organisation which has power to act on their recommendations. Between 12 and 16 jurors are recruited, using a combination of random and stratified sampling, to be broadly representative of their community. Their task is to address an important question about policy or planning. They are brought together for four days, with a team of two moderators. They are fully briefed about the background to the question, through written information and evidence from witnesses. Jurors scrutinise the information, cross-examine the witnesses and discuss different aspects of the question in small groups and plenary sessions. Their conclusions are compiled in a report that is returned to the jurors for their approval before being submitted to the commissioning authority. The jury’s verdict need not be unanimous, nor is it binding. However, the commissioning authority is required to publicise the jury and its findings, to respond within a set time and either to follow its recommendations or to explain publicly why not.

As compared with deliberative polling, a major advantage of the citizens’ jury is cost.

 

Box 11.4 Deliberative polling and nuclear power in the UK

In the early years of the twenty-first century the UK government came to the view that, on account of the age of the existing nuclear plant, security of supply issues, and the climate change problem, it was necessary to re-visit the question of whether new nuclear plant was desirable.

The UK government initiated a consultation process and subsequently, in July 2006, it issued a report giving its view that nuclear power had a continuing role in the electricity supply system, and that it would look favourably on projects to build new nuclear power stations. Consequent upon a legal challenge by Greenpeace, the High Court ruled that the government's decision making process had been unlawful in as much as it had failed to engage in adequate consultation.

Following this decision, in May 2007 the UK government initiated a new consultation process, one element of which was a deliberative polling exercise. This took place in September 2007. The report on this exercise written by the market research firm, Opinion Leader.

On most questions, the change in the response percentages as between the initial and the final polls was small.

Greenpeace looked at the information provided to the participants and took the view that it was biased in favour of nuclear power. In October 2007, Greenpeace complained about the work of Opinion Leader to the Market Research Standards Board The MRSB considered the Greenpeace complaint against B14 of the MRS code of conduct, which states that MRS members 'must take reasonable steps to ensure that Respondents are not led to a particular answer.' The MRSB found that Opinion Leader had not complied with B14, noting that 'deliberative research is a relatively new technique and that there are no current MRS guidelines on preparation or review of research materials specific to deliberative research'.

The UK government published Meeting the Energy Challenge: A White Paper on Nuclear Power in January in 2008, in which it drew on the results of the consultation exercise, and in which it stated its conclusion that 'it would be in the public interest to allow energy companies the option of investing in new nuclear power stations'

and that ' the government should take active steps to facilitate this'.