Policy analysis - Assignment Example

Policy analysis When calculating the costs and benefits of government programs, the rationale for discounting is the time preference which refers to the desire to enjoy the present benefits while putting aside the negative effects of doing so (Mishan, 1967). Discounting future costs ensures t differences in the costs of benefits accrued in separate periods. The rationale is that the government will enjoy current benefits in offering programs and services to the nation than it would in the future despite the cost changes.

#2Monthly principal and interest is $1,543.85, a total of 36 payments each at $55,578.77, and a total interest paid of $5,578.77.#3The Consumer Price Index is of two types. One is the CPI-U which used to measure the weighted average of consumer prices using the base year expenditure weights of an urban family. The second CPI-W is used to measure the wages for clerks and urban workers. These CPI do not account for substitution leading to the eventual overstatement of inflation (Cagan & Moore, 1981).

Consumers change their spending pattern in response to relative price changes over time. This may be due to substitution of one commodity for another as the relative prices change. This result to changes in weights and therefore the price index that fails to note that change overstates the real and true variation in the cost of living. #4The economic value of life as non-economists think is not to be measured using the accounting measures such as the present value of lost earning. The value of life on the basis of preventing accidental deaths cannot be speculated using accounting measures.

The economic value of life of an individual drawn from statistical analysis is higher than the actual present value of the earnings of the same individual when exposed to risk. #5Willingness-to-pay measures based on surveys may overstate the true willingness- to pay of the respondents because the surveys are based on samples from population which have a margin of error. Besides this respondents in surveys do not often respond to questions out of stability or preferences and are mainly inventing answers (Piros, 2013).

As a result, the analysis shows bias on the true willingness-to-pay. #6Most smokers prefer to smoke presently while deferring the disadvantages in the future despite the cost increments in the cigarettes. This is because of the time value of money which entails the concept that money has value in the present than in the future. The cost benefit analysis of policies to reduce the smoking rate shows that consumers benefit less from smoking than the gains they receive. In this case, most smokers have future health problems resulting from smoking.

Therefore, the benefits of smoking should not be considered when conducting cost- benefit analysis of policies to reduce the smoking rate ((Mishan, 1967). #7Suppose I was estimating willingness-to-pay for contraceptives using a contingent valuation survey, the right approach to assessing the validity of willingness-to-pay estimates would be to double the benefits that arise from the use of contraceptive and checking back with the respondents to see if they would be willing to pay for them. ReferencesCagan, P.

& Moore, G. (1981). The consumer price index: issues and alternatives. Washington, D.C.: American Enterprise Institute.Mishan, E. (1967). Cost-benefit analysis. New York, NY: Praeger.Piros, C. (2013). Economics for investment decision makers micro, macro, and international economics. Hoboken, N.J.: Wiley.