Hong Kong AODP: Benefit-Cost Module

This is a four-week module in the three-month Hong Kong Administrative Officers Development Program, taught through the Center for International Business Education, School of Business Administration, University of Michigan. Students are civil servants in Hong Kong and have been selected by the Hong Kong government.

Subject of the Course:

The aim of this course is to teach you the elements of benefit-cost analysis. On one level, this is simple: just add all the benefits of a program and subtract all the costs. If net benefits are positive, the program is a winner; if they are negative, it is not. In choosing among programmatic options, take the one with the highest level of net benefits.

But obviously there are complications. First, it is not always easy to measure benefits and costs, and it turns out that tools of microeconomics can be very helpful here. Second, benefits and costs can occur at different times, and you have to adjust for that problem. Third, benefits and costs are received and borne by different people, and both the economics and the politics of dealing with distributional issues can get tricky. Fourth, there are many different types of programs for which a public servant might want to do a benefit-cost analysis. This list goes on, and it would easily fill a semester for us to cover it thoroughly.

Instead, we have only four weeks to do it, and we will therefore have to compress the material somewhat in order to cover the most important issues. However, given a choice between a cursory treatment of a large number of techniques and examples and a more in depth treatment of the fundamental topics in benefit-cost, I will opt for the latter. My goal is that you will leave the course with a thorough understanding of both what benefit-cost analysis can do and what it cannot do. I would like you to learn both the remarkable power of the techniques when they are used properly, but also their limitations, and with that in mind we will take the time to look carefully at the economic underpinnings of the tools of analysis used in benefit-cost.

E-mail to: alandear@umich.edu Return to: HKAODP Benefit-Cost Home Page
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