The current rate of advances in genetic technology and statistical methods makes it difficult to discuss study design in mapping complex disease traits in a way that will have value beyond a relatively short time horizon. This chapter considers how knowledge about the nature of complex diseases and traits can inform study design and confines itself to genomic (rather than proteomic or metabonomic) approaches.
Genetic influences on complex traits can be considered in terms of susceptibility to disease (clinical and pre-clinical), susceptibility to differences in natural history of disease (severity, complications and prognosis), susceptibility to different therapeutic responses (efficacy and adverse effects) or in terms of the genetic determinants of normal phenotypic variation in health.
The choices between approaches depend not only on the context of the study, but also on the relative costs of ascertaining families, measuring phenotypes and genotyping. The costs of genotyping have been falling rapidly over the last decade and the trend is for genotyping to be done in a few automated high-throughput centres to maximize efficiency. In contrast, more stringent ethical and data protection legislation requirements have tended to increase unit recruitment costs, since ascertainment and recruitment procedures become more demanding and remain very labor intensive. It is likely therefore that the requirements for very large sample sizes and for large collaborative studies will increasingly involve research groups from countries of intermediate development which can assure high fidelity phenotyping, but at much lower cost than is possible in most industrialized nations.
Social benefit-cost analysis is a process of identifying, measuring and comparing the social benefits and costs of an investment project or program. A program is a series of projects undertaken over a period of time with a particular objective in view. The project or projects in question may be public projects – undertaken by the public sector – or private projects. Both types of projects need to be appraised to determine whether they represent an efficient use of resources. Projects that represent an efficient use of resources from a private viewpoint may involve costs and benefits to a wider range of individuals than their private owners. For example, a private project may pay taxes, provide employment for the otherwise unemployed, and generate pollution. These effects are termed social benefits and costs to distinguish them from the purely private costs and returns of the project. Social benefit-cost analysis is used to appraise private projects from a social viewpoint as well as to appraise public projects.
It should be noted that the technique of social benefit-cost analysis can also be used to analyse the effects of changes in public policies such as the tax/subsidy or regulatory regimes. However a very broad range of issues can arise in this kind of analysis and, for ease of exposition, we adopt the narrower perspective of project analysis in this study.
Public projects are often thought of in terms of the provision of physical capital in the form of infrastructure such as bridges, highways and dams. However there are other less obvious types of physical projects that augment environmental capital stocks and involve activities such as land reclamation, pollution control, fishery management and provision of the parks.
If benefit-cost analysis is to assist in the decision-making process the analyst must be able to convey and interpret the main findings of the benefit-cost analysis in a style that is user-friendly and meaningful to the decision-makers. The analyst should never lose sight of the fact that the findings of a BCA are intended to inform the decision-making process. BCA is a decision-support tool; not a decision-making tool. To this end it is imperative that the report provides the decision-maker with information about the project and the analysis which is directly relevant to the decision that has to be made, and to the context in which it is to be used.
There is no blue-print for report writing, as every project or policy decision will be different in various respects, as will the decision-making context and framework within which the analyst will be operating. Good report writing is essentially an art that can be developed and refined through practical experience. The purpose of this final Chapter is to identify what we consider to be some of the key principles the analyst should follow when preparing a report and to illustrate how these might be applied in the drafting of a report on the ICP Project we have used in previous chapters as a case study. As an illustration, we have selected the report prepared by one of our postgraduate students at the University of Queensland, Australia, who has kindly given us permission to use it in this way. In the sections below we explain why we consider this study an example of good BCA reporting.
If benefit-cost analysis is to assist in the decision-making process the analysis must be conducted in advance of the project being undertaken. This means that the value of none of the variables involved in the analysis can be observed, but rather has to be predicted. Risk and uncertainty are always associated with predictions about the future and should be taken into account in the benefit-cost analysis. Since risk and uncertainty impose costs on decisionmakers, these costs need to be assessed and measures taken to reduce them if possible. One way of reducing risk and uncertainty is to acquire additional information mdash; what a benefit-cost analysis does mdash; and the value of information is briefly discussed in Chapter 10. The present Chapter discusses the related concepts of risk and uncertainty.
Risk and Uncertainty
In the preceding Chapters, exercises and case studies we have assumed that all costs and benefits to be included in a cash flow are known with certainty. While this assumption might be acceptable in the context of project evaluation where the analyst is undertaking an ex post assessment of what has already occurred, it is clearly an unrealistic assumption to make where the purpose of the analysis is to undertake an appraisal of proposed projects where one has to forecast future cost and benefit flows. The future is uncertain: we do not know with certainty what the future values of a project's costs and benefits will be.
So far in this book it has been assumed that undertaking a proposed project would have no effect on the market prices of goods and services. However, since the market economy consists of a complex network of inter-related output and input markets, it is possible, in principle, that undertaking the project will have wide-ranging effects on market prices. If the project's output or input quantities are small relative to the amounts traded in the markets for these goods and services, the effects on market prices will be small enough to be ignored, on the grounds that including them would have no bearing on the outcome of the analysis. While this “small project assumption” is a reasonable one for many of the projects which the analyst will encounter, it is necessary to be able to identify circumstances in which price changes are relevant, and to know how to deal with them in the benefit-cost analysis.
A project increases the aggregate supply of the output produced by the project, and increases the aggregate demand for the inputs used in the project. Significant changes in market supply or demand can result in changes in market prices. A significant change in supply or demand is one that is large relative to the quantity that would be bought and sold in the market in the absence of the project being undertaken. It is evident that there is little chance of such a change occurring where the output or input in question is traded on international markets, as will be discussed in Chapter 8.
In Chapter 1 it was suggested that the word “social” in “social benefit-cost analysis” has a rather restricted interpretation: it refers to the group whose costs and benefits are to be calculated and compared by means of the analysis. Often the referent group consists of all the residents of a country or State, but sometimes the definition is a narrower one. We have used the term “efficiency” cost-benefit analysis to refer to a study which calculates all the benefits and costs of a proposed project, irrespective of who gains or loses. A benefit-cost analysis from an efficiency perspective tells us whether the project is an efficient use of resources in the sense that the gainers from the project could, in principle, compensate the losers.
As noted in Chapter 1, a project makes a difference and the purpose of the benefit-cost analysis is to identify and measure that difference using the “with and without” approach. Each person who benefits from the project could, potentially, give up a sum of money so that she remains at the same level of economic welfare as she would have had without the project; these sums are money measures of the project benefits. Similarly, each person who bears a net cost as a result of the project could, potentially, be paid a sufficient sum to keep her at the same level of well-being as she would have had without the project; these sums are money measures of the project costs. If the sum of the monies which could notionally be collected from beneficiaries exceeds that required to compensate those who are affected adversely by the project then the project is an efficient allocation of resources according to an economic welfare criterion known as the Kaldor–Hicks criterion, as discussed in Chapter 1.
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