How are issues of incidence analysis and capitalization incorporated into cost-b

Question

How are issues of incidence analysis and capitalization incorporated into cost-benefit analysis? For each case below, does it make a difference to your answer whether poort individuals own or rent their houses? In particular, if you wished to incorporate the distributional consequences of the following policies and programs, how might you do so?

a. A Government regulation which reduces the allowable level of noise for aircraft. ( Assume that thos who live in the neighborhood of the airport are relatively poort).

b. A subway line intended to make it less expensive for those in low income neighborhoods to get to jobs in the center city.

c. The Superfund program is intended to clean up toxic waste sites. Currently, a disproportionate number of poor people live near toxic waste sites.

Explanation / Answer

The Cost benefit Analysis methodology offers innovative ways to answer questions regarding whether it makes a difference to the poor individuals owning or renting their houses.. CBA is a powerful economics decision making tool which may be used to assess the difference between individuals owning or renting their houses. For this analysis issues of incidence analysis and capitalization are incorporated into the CBA. Incidence analysis has been typically used to understand the distributional impact that government spending may have on healthcare or social welfare and the extent to which it may benefit the different socio-economic groups. In particular, all the cases described above may have some significant effect on the lives of the poor owning or renting their house.

In a cost benefit analysis the advantages need to be balanced against some of the limitations and restrictions. While CBA does add a valuable social economic perspective to decision making, it does not make the decision making itself which should contain other equally critical political and social considerations.

Poor individual owning or renting their houses do make a difference in respect to each of the cases below. Government regulations which reduces the allowable level of noises for aircraft will have a significant impact on the lives of all the strata of the society irrespective of their financial or economic conditions. The distributional consequences for the same will be a better and healthy lifestyle for all the individuals irrespective of whether they are owning or renting their houses. But for individuals who are renting their houses and may not be able to pay their rents on time and have a chance of getting evicted from their houses, may not find the direct consequences of these regulations. But for owners of houses as well as the people belonging to the upper strata of the society, this regulation will have a cascading impact on both their lifestyle as well as the real estate price levels since with the introduction of this regulation, the prices of their houses may increase by a certain extent which will have a major impact on those individuals who are looking to use their houses as an investment asset by either looking to rent it out or sell it to some other home-owners.

A subway line intended to make it less expensive for those in low income neighborhoods to get to jobs in the center city will have extensive implications on poor individuals wither living in their own houses or renting their houses. Now the case may be looked upon like this: Although most of the poor individuals have moved from informal settlements into permanent housings they may own, many still remain trapped in conditions of social exclusion and economic poverty. So a move like this will have profound impact on their lives, since this will enable them to have steady source of income with jobs located in center city. Also for home-owners looking to use their houses as a source of investment of asset, may benefit richly due to the easy accessibility of the center town. House prices may rise considerably, enabling the poor people to have access to a major investment source. Also for people who are living in rented houses, this move may also help them in better accessibility although this might impact their monthly rents since there is a possibility of rents being hiked up due to the superior conveyance schemes. But overall this move will look to have a positive effect on lives of the poor individuals either living in their own or in rented houses.

Again the third move will look to improve the lives of the people living in and around the toxic waste sites. With the project to clean up toxic waste sites, this will have an important impact on people living in and around the locality. For people owning their own homes, their houses now can now perform as a social, economic and financial asset. As a social asset, the house enhances identity and security, helps to build social networks and allows a household to access a range of social services and amenities. As an economic asset, the house can help a household generate an income through home-based enterprises or by providing rental accommodation. Aa house owned aby an individual can be used as a collateral for finance or a tradeable asset and a foothold into the property market.

So with improved living condition, this will impact the lives of the people living in and around the locality and will also enhance the economic conditions of people owning or looking to own a house. So the distributional consequences of all the programs have been elucidated and the issues of incidence analysis and capitalization have been incorporated into the cost benefit analysis.

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