Expert answer:Public Policy Analysis
Solved by verified expert:Week 6 Discussion 1″Prescribing Preferred Policies” Please respond to the following:Explain two of the six criteria for policy prescription, (a) effectiveness, (b) efficiency, (c) adequacy, (d) equity, (e) responsiveness, and (f) appropriateness. Then, describe a real or hypothetical public policy issue and select which of the two criteria you believe would be the most beneficial to use in deciding a policy. Provide at least two reasons for your selection. Debate It: Take a position for or against the following statement: Rational choice is not possible. Discuss how different types of rationality are related to different criteria for prescription. Provide at least two reasons and two examples to support your response.Week 6 Discussion 2″Saving Lives by Prescribing Policies” Please respond to the following:From the case studies, Case 1.1 and Case 5.1, explain two of the major issues. Then, analyze the assumptions that govern safe driving and discuss whether some assumptions are more reasonable than others. Support your position with at least two reasons and one example. From the case studies, Case 1.1 and Case 5.1, recommend the best ways to estimate the value of time and the cost of a gallon of gasoline. Support your position with at least two reasons and one example.
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CASE 5.1 OPPORTUNITY COSTS OF SAVING LIVES-THE 55 MPH SPEED LIMIT
41
Conducting a benefit-cost analysis is not only a technical matter of economic analysis. It is also a
matter of identifying, and if necessary challenging, the assumptions on which benefit-cost
analysis is based. This can be seen if we examine the case of the National Maximum Speed Limit
of 1974.
Table 5.11 describes steps in conducting a benefit-cost analysis and a critique of the assumptions
underlying the analysis. The case shows, among other things, that all steps in conducting a
benefit-cost are sensitive to these assumptions. ■
TABLE 5.11
Measuring the Costs and Benefits of the 55 mph Speed Limit: A Critical
Appraisal
Steps
Critique
Costs
1. The major cost of the National Maximum Speed
Law (NMSL) was the additional time spent
driving as a result of slower speeds. To calculate
the number of hours spent driving in 1973, divide
the total number of vehicle miles traveled on
interstate highways by the average highway speed
(65 mph) and then multiply by the average
occupancy rate per vehicle, which is
approximately 1.77 persons.
Next, find the number of hours spent driving in
1974 by dividing total vehicle miles traveled on
interstate highways by the average highway speed
in 1974 (58 mph). The NMSL caused some people
to cancel trips and others to find alternative modes
of transportation; as a result, time calculations
based on 1974 mileage would be an
underestimate. Therefore, we should use the 1973
mileage of 525 million miles.
Using the following formula, where VM is vehicle
miles, S is average speed, R is average occupancy
rate, and H is the number of hours lost,
Why use 1973 mileage without any
adjustment? The average growth rate in
travel before 1973 was 4 percent.
Therefore, the formula should be
The number of hours lost driving in 1974, based
on this equation, is estimated to be 1.72 billion.
Using the above formula, the estimated
number of hours lost should be 1.95
billion—not 1.72 billion.
2. To estimate the value of this time, begin with the
average wage rate for all members of the labor
force in 1974—$5.05. The value of one hour’s
travel is not $5.05 per hour because very few
persons would pay this sum to avoid an hour of
travel. We estimate that the people will pay up to
33 percent of their average hourly wage rate to
avoid an hour of commuting. The value of time
spent traveling is therefore about $1.68 per hour.
Why take a percentage of the $5.05 figure
based on what commuters would pay to
avoid an hour of travel? We should avoid
reducing the value of people’s time for
two reasons. First, the value of time in
cost to society is equal to what society
will pay for productive use of that time.
Time’s value is not what a commuter will
pay to avoid commuting because commuting
has other benefits, such as solitude for
thinking or the advantages of suburban
living. Second, the value of time spent
driving for a trucker is many times the
industrial wage rate. Discounting would
greatly underestimate the value of
commercial drivers.
3. Application of the cost figure ($1.68) to the time
lost figure (1.72 billion hours) results in an
estimated travel cost of $2.89 billion.
Applying the value of one hour’s time to
the hours lost as calculated above (1.95
billion) results in an estimated travel
cost of $9.85 billion.
4. The NMSL also has some enforcement costs.
Total enforcement cost should be about
Total enforcement costs for signs, advertising, and
$12 million-not $810,000.
patrolling are about $810,000.
a. New signs were posted. Cost estimates from 25
states for modification of speed limit signs
totaled $707,000; for 50 states, this results in an
OK.
estimated $1.23 million. Spread out over the
three-year life of traffic signs, we get an
estimate of $410,000.
b. The federal government engaged in an
advertising campaign encouraging compliance.
The Federal Highway Administration’s
advertising budget for 1974 was $2 million.
About 10 percent of this, or $200,000, was
spent to encourage compliance with the NMSL.
Assume that an additional amount of public
service advertising time was donated, for a total
of $400,000.
Not OK. The Federal Highway
Administration does other advertising.
Public service advertising estimate also
seems low.
c. Compliance costs are difficult to estimate. The Compliance costs pose some problems, but
cost of highway patrols cannot be used because they can be estimated. In 1973, some
these persons were patrolling highways before 5,711,617 traffic citations jumped by
the NMSL. Assume that states did not hire
additional personnel solely for enforcement of
the NMSL. Therefore, we assume that
enforcement of the NMSL will not entail any
additional costs above enforcement of previous
speed limits.
1,713,636 to over 7.4 million. Each
additional traffic citation includes an
opportunity cost to society. If a law
enforcement officer were not issuing
traffic tickets, he or she could be
solving other crimes. Assuming that it
requires 15 minutes for a law enforcement
officer to issue a speeding ticket, the
total cost of law enforcement is $2.9
million. This figure is based on the
average cost of placing a law enforcement
officer on the streets at $6.75 per hour.
This figure is clearly an underestimate
because it does not count time lost
waiting to catch speeders.
Approximately 10 percent of all speeders
will demand a court hearing. Estimating
an average of 30 minutes for each hearing
and an hourly court cost of $45 results
in an additional cost to society of $3.8
million for 171,000 cases. Given the
overloaded court dockets, this
opportunity cost may be even higher.
Benefits
Why estimate gasoline saved by comparing
1973 and 1974 miles-per-gallon figures in
relation to vehicle miles traveled? The
1. The most apparent benefit of the NMSL is the
federal figures for average miles per
amount of gasoline saved. The average gasoline
hour are estimates based on several
economy improves from 14.9 miles per gallon at assumptions. Given the conflict between
65 miles per hour to 16.1 at 58 miles per hour.
industry estimates, Environmental
Use this information to estimate the number of
Protection Agency estimates, and Energy
gallons of gasoline saved by traveling at lower
Department estimates, any miles-per-hour
speeds. Gallons saved will be calculated by the
estimate must be considered unreliable.
following formula, where VMT is vehicle miles
traveled on interstate highways (not all highways) The number of vehicle miles traveled is
and MPG is miles per gallon.
also based on gallons of fuel sold
multiplied by average miles per hour.
Hence, this figure is also subject to
error.
Studies of the efficiency of gasoline
engines show that the effect of reducing
the average speed of free-flow interstate
highways would be to save 2.57 percent of
the normal gas used. In 1979, American
motorists consumed 106.3 billion gallons
of gasoline. Saving 2.57 percent would
total 2.73 billion gallons.
In 1974, the average price of gasoline was 52.8
cents per gallon. This market price, however, does
not reflect the social cost of gasoline, due to
government price controls on domestic oil. The
marginal (or replacement) cost of crude oil is the
price of foreign oil. Therefore, the price of
gasoline must reflect the higher cost of foreign oil.
Use the market price of gasoline in the absence of
price controls, which is about 71.8 cents per
gallon. This figure yields an estimate of $2.50
billion in benefits through gasoline saved.
2. A major second-order benefit of the 55 mph limit
was a large drop in traffic fatalities, from 55,087
in 1973 to 46,049 in 1974. Part of the gain must
be attributable to reduction in traffic speeds.
Studies by the National Safety Council estimate
that up to 59 percent of the decline in fatalities
was the result of the speed limit. Applying this
proportion to the decline in fatalities provides an
estimated 5,332 lives saved. The consensus of
several studies is that a traffic fatality costs
$240,000 in 1974 dollars. Using this figure, the
value of lives saved in 1974 is estimated at
$1,279.7 million.
Why use the market price? There is no way
to determine whether a marginal gallon of
gasoline will be imported or come from
domestic reserves. In addition, the costs
and benefits of the NMSL should not be
distorted simply because the U.S.
government does not have a marketoriented energy policy. In 1974, gasoline
cost 52.8 cents per gallon, and
therefore, a gallon of gasoline saved was
worth 52.8 cents.
OK.
3. The NMSL also resulted in a reduction of nonfatal
injuries. Use the 59 percent figure found in the
fatality studies. Between 1973 and 1974, nonfatal
traffic injuries declined by 182,626. Applying the
estimated percentages results in 107,749 injuries
avoided. Generally, three levels of injuries are
indentified: (1) permanent total disability, (2)
permanent partial disability and permanent
disfigurement, and (3) nonpermanent injury. In
1971, the proportion of traffic injuries that
OK.
accounted for injuries in each category was 0.2
percent, 6.5 percent, and 93.3 percent,
respectively. The National Highway Traffic Safety
Administration estimated that in 1971, the average
cost of each type of injury was $260,300, $67,100,
and $2,465, respectively. The average injury,
therefore, cost $8,745 in 1974 dollars. Applying
this figure to our injury estimate results in $942.3
million as the social benefit of injury reduction.
4. The final benefit of the reduction in property
damage fell from 25.8 million to 23.1 million.
About 50 percent of this reduction was the result
of lower speeds. The NMSL saved 1.3 million
cases of property damage at an average cost of
$363. Therefore, the total benefit from property
damage prevented is $472 million.
OK.
Conclusion
The first estimate of the costs and benefits of the
NMSL results in the following figures (in millions):
Using different assumptions, the second
estimate of the costs and benefits of the
NMSL is as follows (in millions):
Costs
Costs
Time spent traveling
$2,890.0
Time spent traveling
$9,848.0
Enforcement
.8
Enforcement
12.0
$9,860.0
$2,890.8
Benefits
Benefits
Gasoline saved
$2,500.0
Gasoline save
$1,442.0
Lives saved
1.297.7
Lives saved
998.0
Injuries prevented
942.3
Injuries prevented
722.0
Property damage averted
472.0
Property damage adverted
236.0
$3,398.0
$5,212.0
Net benefits: $2,321.2 million
Net benefits: −$6,462 million
Benefits to costs ratio: 1.8
Benefits to costs ratio: .345
Source: The steps and data were suggested by Charles T. Clotfelter and John C. Hahn,
“Assessing the National 55 m.p.h. Speed Limit,” Policy Sciences 9 (1978): 281–94.The
critical comments are based on Charles A. Lave, “The Costs of Going 55,” Car and Driver.
May 1978, p. 12.
CASE 1.1 THE GOELLER SCORECARD—MONITORING AND FORECASTING TECHNOLOGICAL
IMPACTS
CASE 1.1 THE GOELLER SCORECARD—MONITORING AND FORECASTING
TECHNOLOGICAL IMPACTS
When advanced technologies are used to achieve policy goals, sociotechnical systems of
considerable complexity is created. Although it is analytically tempting to prepare a
comprehensive economic analysis of the costs and benefits of such policies, most practicing
analysts do not have the time or the resources to do so. Given the time constraints of policy
making, many analyses are completed in a period of several days to a month, and in most cases
policy analyses do not involve the collection and analysis of new data. Early on in a project,
policy makers and their staffs typically want an overview of the problem situation and the
potential impacts of alternative policies. Under these circumstances, the scorecard is appropriate.
The Goeller scorecard, named after Bruce Goeller of the RAN D Corporation, is appropriate
for this purpose. Table C1.1 shows the impacts of alternative transportation systems. Some of the
impacts involve transportation services used by members of the community, whereas others
involve impacts on low-income groups. In this case, as Quade observes, the large number of
diverse impacts are difficult to value in dollar terms, making a benefit-cost analysis impractical
and even impossible.50 Other impacts involve financial and economic questions such as
investments, jobs created, sales, and tax revenues. Other impacts are distributional because they
involve the differential effects of transportation. ■
TABLE C1.1
Scorecard
Social Impacts
CTOL
VTOL
TACV
Passengers (million miles)
7
4
9
Per trip time (hours)
2
1.5
2.5
Per trip cost ($)
$17
$28
$20
Reduced congestion (%)
0%
5%
10%
Investment ($ millions)
$150
$200
$200
Annual subsidy ($ millions)
0
0
90
Added jobs (thousands)
20
25
100
Added sales ($millions)
50
88
500
10
1
20
TRANSPORTATION
FINANCIAL
ECONOMIC
COMMUNITY
Noise (households)
Added air pollution (%)
3%
9%
1%
Petroleum savings (%)
0%
−20%
30%
Displaced households
0
20
500
Taxes lost ($millions)
0
0.2
2
Landmarks destroyed
None
None
Fort X
7%
1%
20%
2%
16%
40%
DISTRIBUTIONAL
Low-income trips (%)
Low-income household
Noise annoyance (%)
Source: Goeller (1974); Quade, Analysis for Public Decisions (1975), p. 60.
Note: Conventional takeoff and landing aircraft (CTOL); vertical takeoff and landing aircraft
(VTOL); tracked air-cushion vehicle (TACV).
…
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