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Using case studies to teach benefit-cost analysis brings out aspects of the practice of BCA that cannot be effectively taught in lectures. Case studies also allow students to demonstrate what they have learned from earlier lectures. I detail my experience using Regulatory Impact Analyses (RIAs) from the federal government, analyzed and presented by students, to reinforce lessons from lectures on the quantitative aspects of BCA and to teach lessons about how understanding an analysis is more than a mechanical exercise. Among the lessons highlighted by the case studies are how one can combine two policies to obscure the net costs of one, how precision can mask inaccuracy, the use of co-benefits and confusion about baselines. Case studies can be invaluable in presenting a holistic view of benefit-cost analysis.

How much to invest is a fundamental question applying equally well to socially valued public investments as to the private sector. Benefit-cost analysis is the cornerstone of the economic analysis of public policy, and is closely aligned with basic rational choice and market concepts from microeconomics. Information and other constraints often block the direct application of marginal analysis in policy decisions, but the conceptual role of marginalism can still be useful in interpreting cost-benefit analysis. While all policy analysis texts that emphasize the economic dimensions of policy cover the basics of marginal analysis, the sources of market inefficiency, and basic decision rules for policy analysis, the connections between marginal analysis and non-marginal policy decision rules are seldom emphasized. This chapter limits its discussion of marginal analysis to the concepts of optimal quantity and optimal allocation rather than the market based concepts of surplus, equilibrium and elasticity, which are discussed in later chapters. This chapter begins by reviewing marginal and non-marginal concepts and measures for policymaking, and then discusses a set of basic policy decisions that can be informed by these concepts. Student exercises are included and answered in the appendix to the chapter.

In the contest of the European Regional Policy, benefit-cost analysis (BCA) is explicitly required, amongst other elements, as a basis for decision making on the co-financing of major projects by the European Structural and Investment Funds (ESIF). How to teach the principles and applications of BCA in an intensive short course (one week) targeted to an audience of civil servants and young professionals with a range of backgrounds (economics, public administration and others) from different countries? The content of this chapter is motivated by the experience gathered by the team of the University of Milan and Centre for Industrial Studies (CSIL) in seven editions of a summer school on BCA and other training courses. The objective is to distill some lessons learned from this experience.

This chapter focuses on a key test of rational choice in CV studies: do estimates of WTP for environmental amenities derived from split-sample (external) tests in CV studies increase as the amount of the good (or the number of goods) increases (i.e., as scope increases), and, if so, are the WTP estimates “adequately” responsive to scope? For the 111 studies of environmental non-use and mixed use/non-use environmental amenities in our study, after fractional allocation of mixed results and appropriate weighting of studies based on common underlying data, more studies fail (54 percent of the total) than pass (46 percent). Contrary to expectations, the percentage of studies failing scope has increased over time: over the 1987–2001 period, 49 percent of the studies failed a scope test vs 59 percent for the 2001–2016 period. We also find that even the scope tests that “pass” often do not exhibit “adequate” scope sensitivity. For the 21 studies that lend themselves to appropriate quantitative analysis, nine have scope elasticities less than 0.10 and 12 have scope elasticities less than 0.2; only three have scope elasticities above 0.5. The high frequency of no or limited scope elasticities documented in this study suggests that warm glow is an important element of measured WTP for non-use environmental amenities.