CEA Policy Evaluation and Analysis 5 — Questions and Answers
Question 1: In regulatory impact analysis, which approach estimates the value of a statistical life (VSL) by examining wage premiums workers accept for riskier jobs?
- Contingent valuation
- Hedonic wage regression (Correct answer)
- Benefit transfer
- Human capital approach
Correct answer: Hedonic wage regression
Hedonic wage studies isolate the compensating wage differential for occupational mortality risk, which is then used to infer the implicit VSL from workers' revealed preferences.
Question 2: The 'Hawthorne effect' is a threat to internal validity in policy evaluations because:
- Participants self-select into treatment based on expected benefits
- Observed subjects alter behavior simply because they are being studied (Correct answer)
- Program effects fade once monitoring and special attention end
- Spillovers from treated to control units contaminate the comparison
Correct answer: Observed subjects alter behavior simply because they are being studied
The Hawthorne effect means measured outcomes reflect participants' awareness of being observed rather than the program's true causal impact.
Question 3: Which of the following best describes 'budget incidence analysis' in public finance evaluation?
- Measuring how tax burdens are distributed across income groups after behavioral adjustment
- Estimating the combined distributional effects of both taxes and government expenditures (Correct answer)
- Calculating the deadweight loss from distortionary taxes on capital income
- Assessing whether the government budget deficit is sustainable long term
Correct answer: Estimating the combined distributional effects of both taxes and government expenditures
Budget incidence combines tax incidence (who bears the burden of taxes) with expenditure incidence (who receives the benefits of spending) to assess net distributional effects.
Question 4: In program evaluation, 'cream-skimming' refers to service providers who:
- Inflate reported outcomes to meet performance targets
- Selectively enroll the easiest-to-serve participants to boost measured results (Correct answer)
- Reduce service quality once a contract is awarded
- Overcharge governments by misclassifying ordinary costs as program expenses
Correct answer: Selectively enroll the easiest-to-serve participants to boost measured results
Cream-skimming occurs when providers under performance-based contracts prefer lower-cost participants who would succeed regardless, distorting measured program effectiveness.
Question 5: A policy analyst uses a 'synthetic control' method when:
- Large sample sizes make standard regression imprecise
- A single treated unit (state or country) has no natural comparison group (Correct answer)
- Treatment and control units show divergent pre-treatment trends
- Randomization was achieved but noncompliance is high
Correct answer: A single treated unit (state or country) has no natural comparison group
Synthetic control constructs a weighted combination of untreated units that best replicates the pre-treatment trajectory of a single treated unit, serving as a data-driven counterfactual.
Question 6: When applying cost-effectiveness analysis (CEA) rather than cost-benefit analysis (CBA), the key distinction is that CEA:
- Discounts future costs but not future benefits to the present
- Measures outcomes in natural units rather than converting them to monetary values (Correct answer)
- Requires identifying the socially optimal policy rather than ranking alternatives
- Counts only direct program costs while ignoring indirect or societal costs
Correct answer: Measures outcomes in natural units rather than converting them to monetary values
CEA compares programs by cost per unit of outcome (e.g., cost per life saved or test score point gained) without monetizing outcomes, making it useful when benefits resist dollar valuation.
Question 7: The concept of 'regulatory budget' or 'regulatory cap' constrains agencies by:
- Limiting total administrative staff allowed to enforce regulations
- Requiring that new regulatory costs be offset by eliminating existing regulatory costs (Correct answer)
- Capping the number of new rules an agency may propose per fiscal year
- Mandating that all cost estimates undergo independent peer review before publication
Correct answer: Requiring that new regulatory costs be offset by eliminating existing regulatory costs
A regulatory budget requires agencies to offset the private-sector compliance costs of new regulations by reducing costs elsewhere, analogous to fiscal budget constraints.
CEA Policy Evaluation and Analysis 5
In regulatory impact analysis, which approach estimates the value of a statistical life (VSL) by examining wage premiums workers accept for riskier jobs?