Question

1. Suppose policymakers are presented with two projects to lower the level of pollution. Project A costs $2 million and it reduces the pollution by 4 percent and Project B costs $3 million and it lowers the level of pollution by 5 percent. Which project will be approved by Cost-Effective analysis? Why we used Cost-Effective analysis instead of Cost-Benefit analysis in this case?

Answer 1

Cost-Effective Analysis (CEA) is an Economic Manipulating Technique with many occurences by calculating the day-to-day natural units of Life-savings protectors. Economic Manupulating Technique are also referred as Economic Evaluation Techniques. Such Economic Evaluation Techniques (EET) are used to Health Conscious Programmes. It also helps to measure to find how far the EET are used to safeguard the Evils affecting the Human Health in Quantitative Terms.

Occurences is nothing but the Interventions used as basic term working-out in Cost-Effective Analysis (CEA). CEA is manipulated in subjective factors not in Monetary-oriented factors.. CEA are calculated as Cost of Intervention divided into Effect of Intervention.

The policymakers suggested and framed two projects for controlling the Level of pollution are based on the the term QALY (Cost Per Quality Life Adjusted Years). The First Project A costs $ 2 million with the expected outcome of 4 percent and The Second Project B costs $ 3 million with the expected outcome of 5 percent.

Let us calculate the Cost Effective unit in relation to QALy for both the projects.

Project A.

The cost of Project A is $ 2 million. The percentage of controlling outcome is 4%. Then 2000000*4/100= 80000 units (Effect of Intervention)

As per Cost Effective Analysis formula the Possible Resultant factor is calculated as Effect of Intervention/Cost of Intervention.

Then 80000/2000000 = 0.04.

Project B.

The cost of Project A is $ 3 million. The percentage of controlling outcome is 5%. Then 3000000*5/100= 150000 units (Effect of Intervention)

As per Cost Effective Analysis formula the Possible Resultant factor is calculated as Effect of Intervention/Cost of Intervention.

Then 150000/3000000 = 0.05.

Cost Effective Analysis approves Project B. As CEA gives weightage only to the Positive Outcome of effect in terms of Good Health Conditions apart from Monetary Cost. The Project A has the outcome of 0.05. While Project B has the outcome of 0.04. The greater the outcome the greater the benefits of Controlling the pollution.

We use CEA rather than Cost Benefit Analysis (CBA) is due to giving importance of Normative and Subjective factors of QALY (Cost Per Quality Life Adjusted Years) inclined to the Human Life. The Human Value cannot bought with Monetary Compensation. CBA will give importance only to Monetary Compensation rather than Morality importance given to save human life.