Read "steps to analysis: conducting a cost benefit analysis" on page 180 through 181. Answer the three questions that followed you should use example to illustrate your points

PART II Analyzing Public Policy 180 Differences in how cost-benefit analysis is applied can be seen in any number of recept CHAPTER 6 Assessing Policy Alternatives 181 For example, the Trump administration argued in 2018 th standards noted at the beginning of the chapter should not be sunnychicle fuel econrent 3. Adjust the measurements for changes in value over time. In this ar because the costs would exceed the benefits W not be expanded beyond the only example, no such adjustment is made. A exaimed to apply to the present . All costs and Writing in Science magazine, however, a group of independent economists concluded that the administration's analysis nd the 2020 ply to the present. Conceivably, however, one could ma adjustments for those benefits exper god "fundamental flaws and inconsistencies, is at odds with basic economic theory and such as the value of reducing expected cited to come only in the future empirical studies, is misleading, and does not improve estimates of costs and benefits of of carbon dioxide emissions. The adjac " of future benefits to adjacent text limate change from buildup its is done. t text discusses how such fuel economy standards beyond those in [an Obama administration] 2016 analysis." They concluded there was no economic justification to roll back the standards." Sum up and compare all the costs and benefits and conclude whether the costs outweigh the benefits or vice versa reached its conclusion about an ontunerits versa. The study considering the economic costs of nic costs of anal level of taxation without ts of dependence on foreign oil, which another study estimat "estimated to be around 12 cents a gall. STEPS TO ANALYSIS of defending access to Middle Eastern cents a gallon; the military costs ern oil fields; or the dama the damage caused CONDUCTING A COST-BENEFIT ANALYSIS by the production, transportation, and use of gasoline. Still, the analysis found that an optimal tax that would internalize the m more than twice the average combined federal and alize the major social costs is federal and state taxes on gasoline in the United States, which in 2018 totaled about 47 cents per gallon. Conducting a cost-benefit analysis can be simple or a quite complicated pro- Would you change any of the major social costs considered in this cess, depending on the issue. In general, an analyst would identify all the import- analysis? ant costs and benefits; measure those that can be expressed in dollar terms Are there other costs and benefits that should be considered if the and estimate or acknowledge those that cannot be measured easily; adjust the gasoline tax is to be raised? measurements for changes in value over time; and sum up and compare all the costs and benefits to conclude whether costs outweigh benefits or vice versa. Do you think that economists can fairly estimate the dollar value of Let us apply these steps to a policy example. things like improved public health because of reduced air pollution or the value of time lost by those stuck in traffic? 1. Identify all important costs and benefits. Consider the U.S. federal Source: Adapted from lan W. H. Parry. "Is Gasoline Undertaxed in the United States?" Resources 148 (summer gasoline tax, which is the lowest among the world's industrialized 2002): 28-33. nations. Those who support raising it contend that doing so would yield many tangible benefits, among them lowering the country's dependence on imported oil. It would reduce urban air pollution and improve public health; reduce emissions of carbon dioxide (a greenhouse gas) and thus lower the risk of climate change; cut back on traffic congestion and drive Using a discount rate allows analysts to determine the value of future benefits today, time; and lessen traffic accidents, thereby saving lives and preventing but the choice of the rate, essentially an estimate of inflation over time, clearly can have a injuries. Raising the gas tax, however, imposes direct costs on drivers profound impact on the results. For example, consider the present value of $100 earned and on a variety of services that depend on transportation. hundred years from now, with varying assumptions of a discount rate. At a 1 percent discount rate, that $100 is worth $36.97; at 2 percent, $13.80; at 3 percent, $5.20; and at 2. Measure those costs and benefits that can be expressed in dollar percent, only $0.76. As these calculations illustrate, distant benefits may be of minimal terms and either estimate or acknowledge those that cannot be value in current dollars, and a cost-benefit analysis can therefore yield wildly different measured easily. Because a complete cost-benefit analysis of raising results depending on the rate selected. the gasoline tax can become exceedingly complicated, consider a narrow Because the choice of a discount rate can have a great effect on how one appraises study. Although economists cannot easily measure all benefits noted, policy options, that choice underlies innumerable conflicts over government policy deci- they have estimated that the pollution damages amount to about 40 cents sions, from protection against hurricanes like Katrina to efforts to reduce the risk of future a gallon, the carbon dioxide emissions 6 cents a gallon (estimates vary dimate change. The benefits of preventing damage from hurricanes or of slowing or halt- widely here), traffic congestion about 70 cents a gallon on average, and ing global climate change are real and often substantial, but they may occur so far in traffic accidents 60 cents a gallon, for a total of $1.76 a gallon (Parry 2002). the future that discounting the benefits to today's values tends to minimize them