Cost-Benefit

How do politiciansAnalysis
and other stakeholders use CBA in
Perceptions
practice on solutions for substantive problems

Niek Mouter

Delft
University of
Technology

Challenge the future

Introduction
• Researcher TU Delft:
• Economics (Erasmus) and Philosophy of Law (University Leiden);
• 2009 – 2014 Dissertation
• TU Delft
• Improvement of the use of Cost-Benefit Analysis in Practice;

• Post-doc 2014-2017 CBA and ethics;

• Currently assistant professor ‘Infrastructure Project Appraisal’
• www.mkba-informatie.nl

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www.mkba-informatie.nl

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Agenda

This lecture focuses predominantly on use of CBA in infrastructure

planning
1. Formal role of appraisal in the Dutch Planning process;
2. (Perceived) advantages and disadvantages of CBA;
3. How is CBA used in political decision-making process.
4. What are politicians’ attitudes towards CBA?

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 Planning process in NL

• CBA is mainly used in transport domain. More and more in other domains.
• Initiative phase: ministers (assisted by civil servants) discuss with politicians
from (five) regions which challenges should be tackled;
• Political ‘start decision’ when there is consensus on a challenge.
• Exploration phase: problems analyzed and solutions generated;
• Appraisal phase: three favorable solutions analyzed with CBA and EIA;
• Minister – in consultation with regions – selects one solution;
• Project is included in the National Budget for Transport Infrastructure (2028).

• Members of Parliament:
• Can select a different solution than the minister or make a ‘no go’ decision;
• Demand that the minister should reserve money for a project.

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Advantages and disadvantages
• Because there are a lot of frustrations regarding CBA I interviewed 86 key individuals
in the Dutch CBA-practice to scrutinize the instrument in a thorough way;

• 86 key individuals
• Civil servants, academics, consultants, interest groups, researchers
• Investigated their perceptions of:
 Advantages and disadvantages in regard to the use of CBA
 Position CBA should have in the decision-making process
• 74 filled out additional questionnaire

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Advantages CBA
• CBA provides in order of magnitude insight in welfare effects for the
Netherlands

MCA
Travel time savings

Casualties

Noise

CO2

Construction costs

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Advantages CBA
• CBA provides in order of magnitude insight in welfare effects

MCA CBA
Travel time savings 140.000.000

Casualties 60.000.000

Noise 700.000

CO2 400.000

Construction costs 3.000.000.000

• Asks the ‘tax payer question’:

• Why would Truus from Appelscha pay 200 euros extra tax for this project in Amsterdam?

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CBA advantages
• Forces to make lines of reasoning objective;
• Forces to discuss effects

Ambitions!

Image!!
Which effects do you expect?

Everyone understands that we

have to do this project.

To which extent can you prove these

effects?

Than we can assess the realism of your

story.
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CBA advantages
• Optimization of the project;
• Optimizing 1: after the CBA; useless elements out of the project;

• Optimizing 2: in advance; in the planning process more attention to

costs and benefits of the project, see Eliasson and Lundberg (2012).

• Improved decision making: bullshit detector.

• Hi-speed rail Albacete – Toledo
• Opened in 2010;
• 16 persons a day;
• 1126 euro for every passenger;
• Closed in 2012.

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CBA limitations
• CBA cannot include all effects
• Image, knowledge developped during construction,
• Effects easy to monetize dominate
• Uncertainty:
• 3 seconds travel time savings per traveler;
• 50.000 travelers per day;
• 240 days;
• 30 years;
• Value of Travel Time Savings: 10 euro per hour.

• 3 * 50.000 * 240 * 30 * 10 / 3600 = 3 million euro

• 4 * 50.000 * 240 * 30 * 10 / 3600 = 4 million euro

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 (Perceived) disadvantages

CBA inherent limitations

• Incomplete
• Uncertainty
• Effects easy to estimate dominate

Participants are insufficiently aware Participants who are aware of

of limitations as a result of limitations use them
complexity of CBA-systematics and strategically
imperfect presentation

(Some) participants assign (Some) participants assign too

too much value to CBA in the little value to CBA in the
decision-making process decision-making process

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 (Perceived) disadvantages

CBA inherent limitations

• Incomplete
• Uncertainty
• Effects easy to estimate dominate

Participants are insufficiently aware Participants who are aware of

of limitations as a result of limitations use them
complexity of CBA-systematics and strategically
imperfect presentation

(Some) participants assign (Some) participants assign too

too much value to CBA in the little value to CBA in the
decision-making process decision-making process

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Position CBA

• Do you think CBA must have a role?

• CBA should have a role (98,6%)

• CBA should not have a role (1,4%)

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 Position CBA
How do you perceive the value that is assigned to CBA in the
current decision-making process?

Economy (37) Spatial planning (12) Transport (20)

Too much value 0% 77% 45%

Satisfied 57% 8% 35%

Too little value 43% 15% 20%

100% 100% 100%

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Conclusions

• Consensus CBA must have a role;

• Controversy among economists and spatial planners
• In regard to the value assigned to CBA
• Assigning incorrect value perceived as important disadvantage

• Assigning an adequate value is desirable

• Virtuous / nuanced use of the CBA

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 x0%
CBA is worthless
x
100%
Holy Grail

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How to achieve virtuous use?

CBA is a useful method with

some limitations

100%
Limitations Advantage 0%

Holy grail
Y E
Useless
E Y S
E S
S

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 How do politicians use research?

Four types of use of research by politicians identified in the literature:

1. Instrumental: direct and immediate implementation of recommendations;
• Always decide in line with the CBA.
2. Conceptual: use of study for general enlightenment. Change way of thinking;
• CBA can change way of thinking towards a project.
3. Opportunistic: use of study as political ammunition;
• If CBA supports view I use it, otherwise I don’t (and criticize CBA).
4. Symbolic: use of study to make decision and politician look more rational.
• CBA is a ‘rational ritual’. The decisions don’t change;
• The fact that studies were carried out enhances acceptability decisions.

Do politicians use CBA predominantly in an instrumental, conceptual, opportunistic

or symbolic way?

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 How do politicians use CBA?

Already studied in Norway:

• Nyborg (1998): few politicians seemed to use CBA to rank projects
• CBA is screening device for projects requiring closer political attention;
• Politicians use CBA in opportunistic way (only when it supports their conclusions).
• Sager and Ravlum (2005): Norwegian politicians make decisions first and look
to the results of CBAs only afterwards;
• The fact that there is a CBA sends signal of professional decision-making.

Econometric studies Nor (Welde et al.), Swe (Eliasson et al), NL (Annema et al.)
• No relation between outcomes CBA and political decisions concerning
infrastructure projects.

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 2014-2015 I studied how Dutch politicians use CBA

• 5 former ministers or undersecretaries;

• 11 Members of Parliament;
• 11 former Members of Parliament;
• 11 top-level civil servants (1 SG, 4 DGs, 3 Directors, 3 political assistants).

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 Results
How do politicians use CBA in forming their opinion?
• None of the politicians solely grounds their judgments on CBAs;
• Majority of politicians/civil servants interviewed cannot recall situations in
which a CBA changed their viewpoint about a project’s desirability;
• Politicians who assign (high) value to CBA predominantly use it in forming
opinion about desirability of (alignment of) specific transport projects;
• Various politicians state that a very negative CBA can lead to a gradual
change of their viewpoint.
• Interviewed ministers, civil servants and Members of Parliament argued that
very negative CBA HSR Amsterdam – Groningen (BCR 0.1) gradually
changed viewpoints.

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 Other types of CBA use by politicians

• CBA strengthens position of advocates or antagonists in bargaining processes.

• MPs use CBA as political ammunition in political debates (opportunistic use)

I want the project I don’t want the

project
Positive CBA Emphasize results Criticize impartiality,
validity, quality CBA
Negative CBA Criticize impartiality, Emphasize results
validity, quality CBA

• Also politicians who do not use CBA to form their opinion use CBA in an
opportunistic way.

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 Other types of CBA use by politicians

Politicians use CBA in a symbolic way (to make themselves and decisions look
more rational):
• “Dutch people love technocratic politicians. So if I use CBA in my argument I
enhance my popularity.”

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 7 barriers for using CBA in forming opinion

1. The process of forming an opinion is trivial

• Politicians cannot read all reports
• For a politician it is irrational to read a report when viewpoint is clear.
2. Politicians prefer to form opinion based on conversations rather
than on reading reports
• Some politicians are ‘readers’ others are ‘listeners’.
3. Politicians don’t trust the impartiality of the CBA
• Some politicians believe in manipulation, others in ‘implicit influencing’ and
some barely distrust CBA.
4. Politicians disagree with normative choices made in CBA
• Example of such a normative choice is that CBA attaches an equally large
weight to everybody’s utility changes.

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7 barriers for using CBA in forming opinion
5. Politicians worry about explanatory power of CBA
• Human behavior unpredictable;
• Examples of prosperous projects despite skepticism beforehand.

6. Politicians receive CBA too late;

• Sometimes MPs receive CBA few days before debate;
• Not possible to ask confidant to verify the CBA;
• MPs cannot decide themselves on changing viewpoint.
7. When there is plenty of money politicians care less about the social
profitability of a project.
• When there is enough money there is room to play with the money.
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Observations
• No barriers for opportunistic and symbolic use of CBA by politicians;
• Politicians will not necessarily use CBA in forming their opinion.
• Early publication CBA key solution enhance use CBA MPs
• Niek: oblige government to send a CBA of an infrastructure project to Parliament at
least two months, before the debate on the National Budget for Transport Infrastructure
• Sept 2018: Dutch Cabinet attaches importance to sending a CBA of an infrastructure
project to Parliament at least one month, but preferably two months, before the debate
on the National Budget for Transport Infrastructure.

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 Politicians’ attitudes towards CBA

• Politicians’ attitudes towards CBA are positive under the condition that CBAs
are carried out in impartial way;
• When CBAs are not carried out in an impartial way their attitude switches from
positive to negative.
• Virtues CBA:
1. CBA improves planning process (focus on the main issues):
• “When planning a nuclear power plant CBA forces planners to repeatedly
discuss the question which problem they are going to solve and whether this is
still the best solution for a problem. In a state of affairs without a CBA planners
will easily get trapped into discussions about the location where workers of the
power plant can park their bikes and forget to discuss the main issues.”

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 Virtues CBA

2. CBA enhances sharpness of political debate:

• Politicians need to argue in a more precise way why they want a (specific
alignment of a) transport project despite a negative CBA or don’t want a
project despite a positive CBA.
• Without CBA it happens sometimes that politicians only mention: ‘we need this
road’ as underpinning.
• A positive decision with a negative CBA asks for explanation.
3. CBA serves as countervailing power:
• None of the politicians thinks that results of a CBA should dictate the outcome
of a political process. None of the politicians seems to prefer fact-free politics.
• CBA is a useful reality check for prestige projects.

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 Negative aspects CBA
CBA is frequently used to kill the political debate (portray it as holy verdict);
• Politicians perceive CBA as:
• One of the building blocks for political decision-making
• Instrument which feeds instead of ends the political debate.
• Additional disadvantage of using CBA to kill political debate is that there is a
focus on the final indicator of CBA (NPV/BCR). Not on non-monetized effects;

Solution to prevent the use of CBA as a ‘debate killer’:

• Conduct the elements of the political trade-off included in CBA as impartial as
possible;
• Communicate which elements of the political trade-off are not included in CBA
and which normative judgments underlie the analysis (partiality CBA).

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