Questions and Answers of Applied Welfare Economics

Gross Domestic Product is the most well-known indicator of aggregate economic activity. Briefly discuss the major problems and issues of using GDP as a yardstick of economic performance and proxy of
Explain the difference between ordinal and cardinal utility.
The Social Welfare Function is a way to represent the well-being of a community.What assumptions have to be made to define and build a Social Welfare Function?
What are the properties of the following utility function Why in welfare economics does the assumption that individuals have a decreasing marginal utility of income is often too strong and
Design a Social Welfare Function with specific merit goods where weights are assigned to individual-based preferences versus community-based preferences. Is there any practical example of a function
In which sense Sen’s approach is similar to the Pareto sociologist one?
Consider an Arrow–Debreu economy (AD) given by E = {I, H, X, J, Y, U,d, e, p, G, W, t, ℓ, x̄, ȳ}, where all variables are defined as in Section 2.2.a. Discuss in which cases the axiomatic
Briefly discuss the most relevant critics of the two fundamental welfare theorems by providing meaningful examples. What are the main Stiglitz’s critiques on the first fundamental theorem? And the
How do lump-sum taxes and subsidies relate to first-best and second-best policies?What is the difference between policies of reform and second-best policies?
What are the main characteristics of the DS model, and how does it differ from the AD model?
What are shadow prices? Please describe the main caveats in their estimation. Under which conditions, shadow prices can be computed as Lagrange multipliers of a constrained planning problem?
Please describe how a dependent social planner operates within a multilevel government, determines a production plan, selects a policy, and calculates shadow prices.
What is a cost-benefit analysis test?
Why is it often advisable to use accounting prices as imperfect empirical proxies of shadow prices instead of running a computable general equilibrium model?
Imagine that a project uses a locally produced, but potentially importable, input that has an artificially inflated price because of high import tariffs. What approach would be the most appropriate
If a lake becomes used for bathing thanks to a remediation project, how do you value the benefit? Is it correct to consider the use-value associated with it and leave out the non-use value?
If all the citizens of a given area use bottled water in order to compensate for the bad quality of tap water, is it reasonable to believe that a project aimed at improving the tap water quality in
Imagine a group of 100,000 people faces a 1 per cent risk of dying aged 30 to 40, and a public intervention could eliminate this risk. More specifically, the intervention could be described as
Which method would use to value a private hospital room relative to a shared room?
What types of distortions are believed to drive a wedge between market and shadow wages?
What are the disadvantages of estimating shadow wages from project-specific micro-data?
What is the reservation wage? What are the alternative methods for estimating reservation wage?
Consider a conversion factor for labour equal to 0.8. What is the interpretation of such conversion factor? How can it be practically used in a Cost-Benefit Analysis?
A proposed government project would require the hiring of 100 low-skilled workers. Such workers will be picked among unemployed persons. The project offers a wage of EUR 10 per hour. Imagine the
What is the logic behind discounting costs and benefits? Is it coherent and ethical to discount the future? Is a zero social discount rate plausible and convincing?
What is the impact of the social discount rate on the project’s viability? Does a high discount rate favour projects with benefits accruing early or later in the time horizon?
What are the approaches to estimate the social discount rate? What are the key differences between these approaches?
What are the main reasons for variations in social discount rate policies of various countries around the world? Why developed countries generally apply lower rates while developing countries have
Why is the use of time-declining discount rates advocated in the literature? Assume project A will result in net benefits of EUR 1 billion in 200 years and project B will result in net benefits of
What are the arguments for including an analysis of the distribution impact of a project or a policy?
What is the Kaldor–Hicks criterion or test? What is the difference between the Pareto principle and the Kaldor–Hicks criterion? What are the advantages and the disadvantages of such criterion?
Suppose an agency has conducted the CBA for three alternative projects. The results of the CBAs are reported in the following table in millions of Euros:Consider that Group A contains households with
How can welfare weights be derived in a DS framework?
What is the definition of social affordability? Why and when is it relevant for project evaluation?
What is the difference between risk and uncertainty?
What is the difference between sensitivity and risk analysis?
The investment cost of a flood prevention project is EUR 400 million. The annual net benefit will depend on the amount of rainfall: EUR 10 million in a “normal” year, EUR 25 million in a
What are the different approaches to test the sensitivity of a CBA model?
What are the basics steps in performing Monte Carlo simulations?
What are the main differences between the CBA approaches proposed by the Green Book and EC Guide?
What is the practice of CBA in the USA and France?
How has the role of CBA changed in the EU context?
What are the peculiarities of CBA approach adopted by the EIB?
How has the World Bank approach to CBA been changing over the years?
Which are the main reasons of observed ex-ante/ex-post deviations of CBA results?Discuss the possible measures suggested by the literature to mitigate potential forecasting biases and improve CBA
If a complex infrastructural project has been implemented in three different phases with three different financing decisions, would you carry out three different ex-post CBA for each of the phases or
An investment aimed at introducing an augmented reality solution to improve the experience of a museum visit is ex-post evaluated using a CBA. A contingent valuation survey is carried out to museum
An airport expansion is implemented during a period of positive global economic prospects and expected increase in the demand of air traffic, and ex-post evaluated just after the Covid-19 pandemic.
If a project with a high ex-ante ERR experiences slight cost overruns due to implementation delays but a rapid take up of the service after the construction, at a level which is well beyond the
What are the purposes and the key components of an RIA?
Which are the typical costs and benefits assessed in an RIA?
What are the key differences of the RIA’s evolution and practices in the US, the UK, and Europe?
What are the conditions for the use of CBA in RIAs? What are the limitations?