Values derived from objectives

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Values derived from objectives

• Roger Pyddoke
• Swedish Institute for Transport and
  Commmunications Analysis (SIKA)

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The Swedish method and its justification

• The role of Swedish intermediary objectives
• Can CBA be employed for determining intermediary
  objectives?
• Costs for attaining intermediary objectives
• Can values derived from objectives be regarded as
  willingnes to pay values?
• Should values derived from objectives be used for
  CBA?

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Some definitions

• Willingness to pay values (WTPV) Conventional
  CBA values derived from individual willingness to
  pay
• Values derived from objectives (VDO)
• Intermediary objectives (IO) Quantified
  objectives with a requirement to be met before a
  certain date.

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The transport policy objectives

• The overall objective for transport policy is to
  ensure socially and economically efficient and
  long-term sustainable transport opportunities for
  the public and industry throughout Sweden.
• This overall objective is further articulated by
  six subsidiary objectives.

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Subsidiary objectives

• Accessible transport system
• Positive regional development
• Gender equality in the transport system
• High transport quality
• Safe transports
• Good environment

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Relation of CBA to objectives

• Economic welfare theory uses the individual
  citizens own preferences as a foundation for
  calculation of valuations.
• CBA includes most, but not all, of the dimensions
  of the transport policy objectives and
• CBA provides CB-ratios of measures.

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• CBA implicitly assigns a balance between the
  relative weights of the subsidiary objectives.
• CBA therefore contains an answer to the question
  of the desirability of the relative attainment of
  the different subsidiary objectives.

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Values not included in CBAs

• This balance is not necessarily in accordance
  with the desires of the political majority.
• There may be several legitimate reasons for this.
• A first class are values for which we have not
  values and for which it is difficult to formulate
  quantitative goals. Examples Regional
  development and landscape
• A second class of reasons are distributional
  objectives.

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• A third class of such reasons are preferences
  that citizens may have concerning the rules by
  which they want their community to be governed.
• Citizens may want
• to have rule of law even when this comes in
  conflict with the efficient attainment of
  individual preferences.

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• desire their community to be ecologically and
  economically sustainable in the long term which
  may conflict with short term or even life time
  individual preferences.
• Possible reasons
• Cognitive limitations like myopia

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• The quantified intermediary objectives may be
  more far reaching than the desirable attainment
  of these objectives implied by CBA.
• How can CBA be used for attainment of quantified
  objectives that are set at other levels than
  those implied by CBA?

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The role of Swedish intermediary objectives

• The central purpose of the intermediary
  objectives is to stimulate a more ambitious
  search for efficient measures that may contribute
  to further attainment of objectives.

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• And furthermore
• The IO are intended to express the desired
  balance between the subsidiary objectives.
• The IO are supposed to be attained by the an
  appropriate combination of measures decided by
  the government
• The IO are supposed to be monitored by the
  parliament.

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• Then
• The evaluation of the attainment of the goals can
  theoretically lead to an adjustment of the
  intermediary objectives or the combination of
  measures.
• The intermediary objectives must be balanced to
  allow a consistent attainment of the goals.

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• It must be possible to employ the intermediary
  objectives in combination with the price signals
  provided by principle of social marginal cost
  pricing
• which is ..
• a basic principle in the transport policy.

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Can CBA be employed for determining intermediary
objectives?

• A procedure for determining IO may involve two
  steps
• First step Calculate the socially efficient
  degree of attainment of objectives. Requires a
  full set of relationships describing the effects
  of all measures and knowledge about the most
  efficient combination.
• Second step Calculate the shadow price of
  attaining the intermediary objectives.
• Both the above steps may be used to determine a
  desired level of intermediary objectives

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Excursion on available and unavailable policy
measures

• Available measures measures that have a full
  legal support and preferably are used already
• Unavailable measures may be so because of
  lacking
• legal support or
• political desirability or
• not yet fully developed

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Unavailable measures may be very interesting

• to achieve the central purpose of the IO
• to stimulate a more ambitious search for
  efficient measures that may contribute to further
  attainment of objectives.

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Examples of costs for attaining intermediary
objectives

• Road safety
• Half the number of killed in road transport to
  2007 compared to 1996
• Cost about the double of the WTPV
• Alternative calculation has shown that this can
  be achieved at lower costs.

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• Carbon dioxide
• The same level of emissions 2010 as 1990
• Requires high fuel taxes and much higher costs
  than predicted tradable permit prices.

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Two central questions

• Can derivation of values from objectives be
  regarded as a method for determining willingness
  to pay?
• Can values derived from objectives be given a
  meaningful use in planning and decision making?

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Considerable difficulties in finding reliable
estimations of WTPV

• Examples Carbon dioxide values and Values of
  statistical lives
• In some cases we have refrained from giving
  WTPVs for example for landscape values
• Therefore
• A need to use VDOs arises

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VDOs are not without problems

• The use of VDOs involves circular reasoning.
• Political decisions should count for something
  when we cannot determine citizens preferences by
  other means.
• Political decisions in this sense do not
  perfectly reflect citizens individual
  preferences
• Implicit political valuations are not uniquely
  determined

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• The valuation can change when the majority
  changes or even with the current majority over
  time
• Also heavily dependent on assumptions on
  available measures

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Four different implicit valuations of carbon
dioxide in Sweden.

• Transport sector objective
• Carbon dioxide tax
• Obligation within the EU
• Extra obligation

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• Political decisions and derivation of values from
  objectives can not be regarded as a substitute
  method for determining WTPVs.
• Therefore the answer to the first question is NO!
• VDOs can however be given a meaningful use in
  planning and decision making.
• The central reason for this being that this
  allows us to conduct analyses of how we may
  attain objectives cost efficiently.

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Conclusion

• For most cases conventional WTPV should be used
  if possible
• For a few cases, where we lack or have very
  uncertein WTPVs, VDOs may be very useful or
  even indispensible
• The use of VDOs should be strictly regulations.
  These should involve clear directives from
  government on which objectives to use