Question

When speed limits were increased from 55 to 65 miles per hour a news item appeared in the Chicago Tribune, which showed that deaths on Illinois highways increased since the speed limits were raised to 65 mph. (a) Assuming that the faster speed caused the deaths, does this prove that cost-benefit analysis was not used in the decision to return to the 65 mph speed limit. (b) What is being implied if we do not go back to the 55 mph limit?

Answer 1

1. By assuming that the faster speed caused the deaths, we can say that cost- benefit analysis was not used in the decision to return to 65 mph speed limit. Cost - befit analysis is a tool used by the economists and planners to evaluate the costs and benefits associated with a new project or decision. While conducting the cost benefit analysis, one have to list out all the costs of a decision or project including the explicit and implicit costs, intangible costs, opportunity cost etc. and also have to list out all potential benefits of the decision. Then see whether the benefits outweigh the costs. Only if the benefits outweigh the costs, the project or decision is feasible and should be implemented. In the above given case the speed limit hike from 55 mph to 65 mph have been implemented without a cost- benefit analysis. If the analysis has been done, the officials could know that the cost of the decision in the form of increase in the death tolls outweigh its potentials benefits and the decision could be avoided.
2. If the speed limit increase is the reason for the rise in death tolls, the cost of the decision is higher then its benefits. The cost is in the form of deaths will remain and this will outweigh the potential benefits of the decision. So if the speed limit do not go back to the earlier limit the cost will continue to outweigh the benefits and we can say that he decision is not good for the economy.