Economic Evaluation: The phase-out of fossil fuel vehicles

Question: The Danish government imposes registration taxes. Should it be counted as a social cost because it causes a deadweight loss, where it is relevant to use the MCPF? Or should it be categorized as social benefit, as the taxation decreases the negative externality (pollution) and hereby increases social surplus? 

Regarding valuing impacts in the input market, I am not sure how to handle this? Maybe the labor hired to administrate the taxations can be used elsewhere and hereby imposes an opportunity cost? 

The demand for non-fossil cars will increase, as the taxes are less than for fossil cars. The opposite is true for the fossil car market, thus is a social cost. As cars are a market good, the social benefit can be calculated by direct estimation. 

Answer: Taxes alone are not considered as social costs or social benefits. When taxpayers pay tax, it increases the government revenue (which can be used for public welfare).  Taxes are losses to the taxpayers but gains to the government, and at the level of the society as a whole, it is just a transfer. 

At the same time, as you correctly point out, taxation can lead to a distorted market, giving rise to a deadweight loss. This deadweight loss can be taken care of if we multiply all the government revenue and expenditure by MCPF. In other words, paying higher taxes itself is not a social cost, but it does lead to some deadweight loss, and this deadweight loss is accounted for by the MCPF coefficient. Note that the MCPF is the marginal cost of collecting tax revenue in general, which is not directly to the deadweight loss in the car market. In fact, appropriate taxes in the car market do not lead to a deadweight loss but increase efficiency, because it reduces pollution. However, when you reduce taxes in the car market, to keep tax revenue constant, the government has to collect taxes elsewhere, for example, by increase income tax or corporate tax -- because income tax or corporate tax lead to deadweight loss, making MCPF greater than 1. Let me know whether this is clear because it is not easy to understand the meaning of MCPF. 

The reduction in pollution (mostly carbon emission) should be calculated separately as a social benefit. This is probably the largest benefit of the policy, the main reason why the policy is implemented.

You do not need to calculate the input market for the tax collection. Because the government usually hires a fixed amount of employees related to taxation, even if there is some change to the employment, it is negligible compared to the impact (change in the consumer surplus and producer surplus, as well as the benefit from the reduction in carbon emission) caused by the number of fuel vs. electric vehicles.

Economic Evaluation of Drug Subsidy

Question: We had talked to you about providing subsidies for medicines. We have found a drug (called Tresiba®), which comes on the market in 2013 with conditional reimbursement, ie. that only some consumers have access to the subsidy. In 2016, the drug receives a general subsidy, i.e., all consumers have access to the subsidy. 

We have found data on this and we see a very large increase in sales after general subsidies. In addition, we also see that other drugs within the same disease, begin to decline when Tresiba receives general reimbursement. 

We therefore have the following research question, which we would like to investigate: What effect does a change in reimbursement status from conditional reimbursement to general reimbursement of the drug Tresiba® have on the number of consumers of the drug? 

Our effect measure is the number of consumers. We are thinking of calculating the C/E ratio, where we look at what are the extra costs per extra patient? 

What do you think of our research question? And our whole idea?

Answer: In CBA or CEA, the ultimate goal is to make some policy recommendations. In other words, at the end of the analysis, you can recommend whether it is better to have conditional reimbursement or general reimbursement. Therefore, you should be able to decide the threshold C/E ratio above which switching to general reimbursement is not worthwhile (and below which it is worthwhile). This is something you should keep in mind. 

In order to determine the threshold C/E ratio, you should consider what benefits does the increase in consumption of Tresiba® bring. For example, if the cost of 100 kroner increases the consumption by 1, while the increase is only worth 60 kroner as benefits to the consumers and the producers, the reimbursement is not worthwhile. In other words, in your CEA, you still need to have an idea of the approximate monetary value of each unit of effectiveness in order to make a policy recommendation. 

In most cases when we talk about CBA or CEA, we focus on whether a program/intervention is socially worthwhile. Your research question focuses on the increase in consumption and the number of consumers. It seems that your focus is on the benefit to the company selling Tresiba®?

One thing to think about when you choose a project for economic evaluation is whether the project is realistic – in other words, whether the corresponding policy can be approved without strong resistance from the residents. You should be able to provide a good justification for the project/intervention.

Natural experiments

Natural experiment occurs when some exogenous event (e.g., government policy) changes conditions for some group. They are used to uncover “causal relationships,” and often require advanced statistical analysis. 

Angrist (1990) provides an example. This paper aims to estimate how military service affects lifetime earnings. It is often hard to estimate such effect directly because people without good working opportunities are usually more likely to serve in the military, so the lower-income is not “caused” by military service. 

The paper uses a government policy during the Vietnam War – eligibility for military service is “randomly” determined by the draft lottery using the dates of birth. In this case, it could guarantee that when conducting statistical analysis, all the other characteristics of the veterans and the non-veterans are comparable, so we can be sure that the difference in income is “caused” by the military service. The analysis shows that the earnings of veterans were, on average, about 15 percent less than the earnings of non-veterans.

Angrist, J. D. (1990). Lifetime Earnings and the Vietnam Era Draft Lottery : Evidence from Social Security Administrative Records. American Economic Association, 80(3), 313–336.

What causes the planning fallacy?

Generally speaking, there are two reasons why the planning fallacy happens. 

First, overconfidence. Overconfidence has been consistently observed among people. In terms of planning, people often make an optimistic estimate on the time and costs needed to finish a project. This is because it is easier to imagine a project goes well, and hard to anticipate all the possible obstacles and difficulties to be encountered along the way. 

Second, strategic misrepresentation by the government (planner). The government has incentives to deliberately underestimate the cost to get the project approved. It is easier to get forgiveness for overspending than permission for starting. Once the project starts, it is hard to stop, and the taxpayers may simply not monitor the eventual costs of the project. This situation is more serious when there are many departments/ministries in the government competing for the budget.

Precise offer vs. range offer

One quick question:

 

When I am asked in a job interview what my salary expectations are and I have a precise idea of my reservation price. Is it better to make a selective offer or a range?

 

Example: I want at least 4500 for the job. With which tactics do I go into the negotiation. Do I go in and say I want 4950 or is it better if I say between 4700 and 5000 to start?

 

Among other things, I have no comparable information about the salaries for this position and company.

 

 

Answer: 

Generally speaking, a range offer works better than a precise first offer, and this is especially true when you are not sure about the reservation price of the employers – it does not appear to be aggressive/impolite, and it does not reveal too much about your reservation value. You could say 4900 to 5600 as the range offer, which would work better than 4950.

 

In addition, you can/should combine the range offer with other issues: “I can do something around 4900 to 5600, depending on the package, including bonus, vacation, relocation compensation, etc.” In this way, it shows some of your flexibility.

 

That said, it would be greatly helpful to know the industry standard for the position to find a more informed range offer. If you are completely in the dark, it is difficult to make an effective offer. Websites like Glassdoor, salary.com might have some information on the salaries of the position.

 

Many current textbooks on negotiation do not mention range offers, because the effectiveness of range offers has only been accepted by negotiators in recent years.

 

 

资产负债表、利润表、现金流量表 关系

资产负债表体现一家公司的实力。利润表以效益为基础，体现的是一家公司的能力。现金流量表体现一家公司的活力。拥有良好的现金流是一家公司保持活力，“想干什么就干什么”的基础。如果你这家公司确实有利润但是没有现金流，那其实什么也干不了，手上有一堆应收账款其实是没有用的。

资产负债表距今已有将近500年的历史了，从意大利的路卡帕乔利就开始有了。利润表大概是1920年以后才被美国和欧洲一些国家要求一定要披露的一个报表。现金流量表是1987年才开始有的。从这个历史发展的维度看，资产负债表要比利润表和现金流量表更为重要。

从另外一个角度来看，利润表其实体现的就是资产负债表里面的一个科目，叫做未分配利润的变动情况；现金流量表其实也只是体现了资产负债表里面的一个科目，就是现金的变动情况。从这个角度上来说，资产负债表是三个报表的核心，所以我们要做财务报表分析的时候，就先从资产负债表开始。

1、利润表和资产负债表

利润来源于收入，收入减去成本费用，就得到利润。这就是利润表的基本。资产负债表上的资产是可以为企业带来收入的，同时，企业在使用这类资产过程中，其耗用又会令资产逐步转化为利润表中的成本费用。

以固定资产为例，当使用固定资产进行生产活动时：一方面其生产出产品，进而通过销售产生收入；另一方面，固定资产的账面价值以折旧方式在资产负债表上逐步减少，而相应金额则以折旧费用的形式出现在利润表的成本或费用中。

2、利润表和现金流量表

利润表和现金流量表都是期间的报表。通过这两张报表，可以从利润与现金流两个不同维度来观察评估企业的赚钱能力。

假设甲、乙两家企业从同一年开始经营，而且利润表的大致情况基本相同：收入一亿元、费用八千万元、净利润两千万元。但是，从现金流量表来看，甲企业通过赊销方式进行销售，也就是说先赚利润，后收钱，所以其经营活动产生的现金流较少；而企业乙要求款到交货，那么其现金流量表中的经营活动产生的现金流就要明显好于企业甲。这两家企业从利润表上看似一致，现金流量表的表现却是大相径庭。

Pigouvian tax: example.

The figure below shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost.

If the government imposes a tax equal to the marginal external cost. How much is the tax? What is the equilibrium quantity after the implementation of the tax? What is the price paid by consumers?

To understand this question, you need to recall that when a tax is imposed, it creates "a wedge between the price buyers pay and the price sellers receive”, regardless of whether the tax is imposed on the buyers or the sellers. Therefore, we need to find the quantity where

Price paid by the buyers - Price received by the sellers = Tax,

that is to say, we need to find the quantity where the distance between the demand curve and the supply curve is the same as the amount of tax.

On the other hand, we know that tax imposed by the government is equal to the marginal external cost, and

marginal external cost = marginal social cost (MSC) - marginal private cost (MC),

we just need to find the quantity where the distance between MSC and MC is the same as the distance between the supply curve (the same as MC) and the demand curve (the same as MSB). This occurs at the intersection between MSC and MSB, so the quantity is 4 tons.

If the analysis feels a bit complicated, you can simply remember the conclusion: when the government imposes a tax equal to the marginal external cost, then the quantity would be the efficient quantity, that is, the quantity where MSB = MSC. Taxes that are used to restore efficiency from negative externalities as in this case are called Pigouvian Taxes, named after English economist Arthur Cecil Pigou (1877–1959).