Costos En Ingles Capitulo 8 Barry Fiels

Benefit-Cost Analysis:
Costs
In this chapter we look at the cost side of benefit-cost analysis. The importance of accurate cost measurement often has been underestimated. The results of a benefit-cost ana1ysis can be affected as easily by overestimating costs as by underestimating benefits. In developing countries, where people place a high priority on economic growth, it is criticallyimportant to know how environmental programs will affect that growth rate and how costs are distributed among different social groups. In industrialized countries, opposition to environmental policies frequently centers on their estimated costs, which means that those doing benefit-cost analyses of these programs are well advised to get the cost estimates right. In this chapter we will first take up somegeneral considerations about costs, then look at some specific issues and examples of cost estimation.

The Cost Perspective: General Issues
Cost analysis can be done on many levels. At its simplest, it focuses on the costs to a single community or firm of an environmental regulation or of a single environmental project, such as a wastewater treatment plant, incinerator, or beach restorationproject. The reason for calling these the simplest is that they usually proceed by costing out a definite engineering specification that has dear boundaries and for which the "rest of the world" can rightly assume to be constant.

At the next level we have costs to an industry; or perhaps to a region, of meeting environmental regulations or of adopting certain technologies. Here it is no longerpossible to rely on simple engineering assumptions; we must do things such as predict with reasonable accuracy how groups of polluting firms wil1 respond to changes in laws on emissions or how they will respond to changes in recycling regulations. Problems will arise because not all firms will be alike-some small, some large, some old, some new, and so on-and each of them will usually have multiplepossibilities for reacting to regulations.

At a still higher level, our concern may be with the costs to an entire economy of achieving stated environmental goals. Estimating costs at the national level calls for an entirely different approach. Here everything is connected to everything else; when pollution-control regulations are imposed, adjustments will reverberate throughout the economy.Tracing them out requires macroeconomic data and usually fairly sophisticated aggregate models. After taking a look at several general issues in cost estimation, we will deal with the subject at these different levels.

The With/Without Principle
There is an important principle that has to be kept in mind in this work. In doing a benefit-cost analysis of how firms will respond to new laws, wewant to use the with1without principle and not the before/after principle. We want to estimate the differences in costs that polluters would have with the new law, compared to what their costs would have been in the absence 01 the law. This is not the same as the difference between their new costs and what their costs used to be before the law. Consider the following illustrative numbers that applyto a manufacturing firm for which a pollution-control regulation has been proposed:

Estimated production costs:

Before the regulation: $100
In the future without the regulation: $120
In the future with the regulation: $150

It would be a mistake to conclude that the added costs of the pollution-control regulation will be $50 (future costs with the regulation minus costs before the law).This is an application of the before/after principle and does not accurately reflect the true costs of the law. This is so because in the absence of any new law, production costs are expected to increase (e.g., because of increased fuel costs unrelated to environmental regulations). Thus, the true cost of the regulation is found by applying the with/without principle. Here, these costs are $30...