AEC 865: Agricultural Benefit-Cost Analysis

Course Description: Spring 2008

(For detailed reading list, contact instructor)

Note: Students with disabilities who desire accommodation in connection with AEC 865 should contact the Resource Center for Persons with Disabilities to establish reasonable accommodations. For an appointment with a counselor, call 353-9642 (voice) or 355-1293 (TTY).

Instructor:

Eric W. Crawford
Department of Agricultural Economics
Agriculture Hall, Room 303B
Telephone: 432-2481
E-mail: crawfor5@msu.edu

Schedule:

T, Th 10:20 - 11:40, Room 48 Agriculture Hall
Optional 50-minute lab/discussion sessions on most Thursdays, 11:50-12:40, Room 48 Agriculture Hall
Office Hours: Visits are encouraged; no set hours--just call for appointment.

Objectives:

In general, to develop the ability to carry out financial and economic analysis of development projects and policies, primarily but not exclusively those related to agriculture, natural resources, and the environment.
In particular, (a) to review the principal theoretical concepts and empirical issues underlying benefit-cost analysis; (b) to familiarize the student with the common analytical methods; and (c) to use case studies and exercises to illustrate the application of these principles and methods in a practical setting, in both Third World and industrialized countries.
To give students experience in the use of computer software for benefit-cost analysis.

Course Procedures:

An active learning approach will be followed, with lecture segments interspersed with in-class group mini-exercises and discussions.
An optional 50-minute lab session will be held in most weeks to provide practice in doing sample calculations, with discussion and interpretation of results. (Schedule of lab session topics)
Students will be expected to keep up with the readings so that they can participate effectively in class discussions and exercises.
Each student will need a simple calculator, for both exercises and exams. To provide familiarity with computer applications in cost-benefit analysis, students will be encouraged to carry out part or all of the project exercise using spreadsheet software. Other computer software will be demonstrated in the optional lab sessions.
The course grade will be based on a project exercise and an individual assignment, a midterm exam, and a final exam. The percentage grade allocation will be:

20 percent: Project Exercise
20 percent: Individual Assignment (article critique)
25 percent: Midterm Exam
35 percent: Final Exam

Two other non-graded exercises will be used to help strengthen the student's grasp of concepts and applications. These are:

Computation of import parity prices
Caribe Containers case study

Academic integrity: Students will be expected to adhere to University policies as outlined in the General Student Regulations, section 1.00, Protection of Scholarship and Grades, and in the Graduate Student Rights and Responsibilities, section 2.3.8, both of which can be found in the Spartan Life handbook at www.vps.msu.edu/SpLife/default.pdf. See also the academic honesty page on the Ombudsman's Web site, at www.msu.edu/unit/ombud/honestylinks.html. Cheating, plagiarism and other violations of academic honesty will not be tolerated, and may result in a 0.0 grade on the assignment or in the course.

Readings: Texts, Course Packets, Library Reserve

The textbook is: Pedro Belli et al., Economic Analysis of Investment Operations: Analytical Tools and Practical Applications. Washington, D.C.: The World Bank, 2001. HC79 .E44 E28 2001
The textbook and course packet 1 are available for purchase from the Student Bookstore (SBS) on Grand River (just across from Olin Health Center). Packets 2 and 3 are available from Budget Printing Center, 972 Trowbridge Road (far west end of Shoprite building), Tel. 351-5060.

Packet 1: Class handouts. (Must be purchased)
Packet 2: Most required readings outside the textbook. (Purchase is optional; most materials are on reserve in the Main Library)
Packet 3: Required readings from J. Price Gittinger, Economic Analysis of Agricultural Projects, 2nd. Ed., Baltimore: Johns Hopkins Univ. Press (for the World Bank), 1982. (Purchase is optional; book is also on reserve in the Main Library)

Library reserve: The optional readings and some required readings are on reserve as books or coursepacks in the Main Library at the Reserve Desk, second floor west.

Schedule of Topics:

Tues Jan 8	Introduction and description of course objectives and procedures.
	Background and overview of benefit-cost analysis.
Thurs Jan 10	Conceptual background: Review of welfare economics

Tues Jan 15	Multiple objectives; the numéraire; categories and valuation of costs and benefits
	Externalities, indirect effects, and intangibles
Thurs Jan 17	Export and import parity prices; Import Parity Price Exercise
	Model farm budgets
Tues Jan 22	Steps in financial analysis. Discounting and internal rate of return.
	Introduction to Graded Exercise 1: Project Case Study
Thurs Jan 24	Shadow prices (1): the small project/small country case
	Shadow price of foreign exchange; alternative adjustment approaches.
Tues Jan 29	Shadow pricing, cont.: traded goods;
	Tradable but nontraded goods; introduction to nontraded goods
Thurs Jan 31	Shadow price of labor and land
	Introduction to Caribe Containers Exercise, Part I
Tues Feb 5	Shadow pricing (2): large project; large country case--when prices change
	Analysis of consumer and producer surplus; supply and demand prices
Thurs Feb 7	Shadow pricing (2), cont. Valuation of nontraded and traded goods when prices change
	Capital constraints; inflation
Tues Feb 12	Risk analysis in project appraisal (1): sensitivity analysis and basic decision analysis

Thurs Feb 14	Present value analysis methods; benefit-cost ratios;
	Mutually exclusive projects; size differences
Tues Feb 19	Present value analysis, cont.
	Capital constraints; inflation
Thurs Feb 21	Distributional analysis: gains and losses; gainers and losers

Tues Feb 26	Discussion of graded project exercise
	Discussion of Caribe Containers Exercise, financial and economic analysis
Thurs Feb 28	MIDTERM EXAM

Mar 3-7	SPRING BREAK

Tues Mar 11	Discuss midterm exam
	Discuss Caribe Containers Exercise, transfers and project reshaping

Thurs Mar 13	Distributional analysis, cont. Government budget and fiscal effects.
	Incorporating multiple objectives
Tues Mar 18	Economic appraisal of rural road projects

Thurs Mar 20	Risk analysis (2): probabilistic benefit-cost analysis; use of @Risk

Tues Mar 25	Benefit-cost analysis of environmental impacts
	Introduction to Individual Assignment (article critique)
Thurs Mar 27	Intergenerational issues: the discount rate and sustainability


Tues Apr 1	Cost-effectiveness analysis: applications to health

Thurs Apr 3	Measuring the economic benefits of agricultural research--LDCs

Tues Apr 8	Regional economic impact analysis

Thurs Apr 10	Evaluating the economic impact of natural resource management projects
Tues Apr 15	Analysis of trade and price policies (nominal and effective protection coefficients)

Thurs Apr 17	Analysis of trade and price policies, cont. (subsidy equivalent measures)

Tues Apr 22	Comparative advantage and domestic resource cost analysis

Thurs Apr 24	Discuss individual assignment

Tues Apr 29	FINAL EXAM 10:00-12:00 noon

Lab Sessions:

Optional lab sessions are held on most Thursdays from 11:40-12:30. Their purpose is primarily to work through numerical problems related to the subject matter covered that week, and secondarily to discuss the concepts and issues involved.

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January 7, 2008
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