There are a variety of reasons for wanting to measure the costs and benefits from policy and other changes in economic activity. Governments want to measure the impact of their policy changes on society as a whole, while private agents focus on the impact they have on their own welfare and the welfare of those they care about. In markets subject to tax and other distortions market prices are not normally reliable measures of the social valuation of goods and services. Thus, they cannot be used to evaluate the social impact of policy and other changes. Instead, we derive shadow prices of goods and services to look through market distortions and measure social valuations. When changes in economic activity are evaluated using these shadow prices they provide measures of the social impact of policy and other changes. This course summarises the information provided by different welfare measures for single consumers and then looks at ways to aggregate them over consumers. In doing so we examine ways to account for distributional effects in policy evaluation. Tax reform and the optimal provision of public goods are examined as applications of these shadow pricing rules.

Upon successful completion of the requirements for this course, students will be able to:

• determine when a CBA may be performed in a meaningful way;
• perform the CBA as completely as possible under relevant modelling assumptions or approximations;
• identify the elements that may compromise the validity of the CBA such as limitations in modelling assumptions, limitations in data, and political concerns;
• effectively communicate the results of the CBA to the relevant parties.

Mid-semester examination (30%)

Four Homework Assignments (20%)

Final Examination (50%)

2 lectures and 1 tutorial per week

ECON2101/2111 Microeconomics 2 (P or H).

Recommended Reading: See course website.

Boardman. Anthony E., David H. Greenberg, Aidan R. Vining, and David L. Weimer. Cost -Benefit Analysis: Concepts and Practice, 4th Edition (Pearson series in Economics, 2011)

See course website http://ecocomm.anu.edu.au/courses/course.asp?code=ECON2133

Please refer to Course Website