Social Cost-Benefit Analysis:
The Case of Guggenheim Helsinki
Project impact on society
Positive
(Social Benefits)
Cost - benefit analysis
Negative
Total cost
(Social Costs)
of the project
Expected future
benefits
1. Obtaining the net benefit of the project at shadow prices.
2. Adjustment of the impact of the project on income distribution.
3. Sensitivity analysis.
4. Adjustment for the impact of the project on Merit and Demerit Goods. Compare social and economic value.
5. Recommendations.
Oleksandra Sushchenko
Microeconomics: Policy
Case study presentation
Social Cost-Benefit Analysis:
The Case of Guggenheim Helsinki
1. Obtaining the net benefit of the project at shadow prices:
- how many visitors per year (New York, Venice, Bilbao);
- WTP (Hansen, 1997).
2. Adjustment of the impact of the project on income distribution:
Benefits:
- Jobs (estimated by The City of Helsinki);
- Positive externalities (restaurants, transport companies, etc.).
Costs:
- construction;
- running;
- license.
3. Sensitivity analysis:
-
Risk involved with the brand image of Guggenheim (Berlin 1997-2012, NY SoHo 1992-2001, Las Vegas 2001-2008);
Negative spillover (Influence to the existing museums within the capital area, main once: Ateneum, Kiasma, HAM).
4. Adjustment for the impact of the project on Merit and Demerit Goods. Compare social and economic value:
-
Building alternatives/alternative museums (Checkpoint Helsinki);
Merit and Demerit goods.
5. Recommendations:
- Consider the budget which already has been spent on design of the building.
Oleksandra Sushchenko
Microeconomics: Policy
Case study presentation
AT & T and Time Warner merger analysis
• Background and data on company & market size and
competitors?
• Background on merger proposal
• Analysis and potential effects of this vertical merger
• Similar large vertical mergers?
• Recommendation
Janna Öberg
IoT and the Smart Grid
WHY?
POLICY PROBLEM: Replacing conventional grids with smart grids
■
Electricity consumption economic, environmental and security (continuity) issue
–
WHAT?
Themes: Natural Monopoly, Technology,
Energy, Infrastructure
Price/Consumption information and monitoring, Balancing supply and demand, Externalities  over-consumption
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Internet of Things (IoT) and Smart Grid: Gathering data from various grid points  smart meters, monitoring devices, communication and
analyzing
■
Balancing supply and demand more efficiently
–
No need for back up plants, can use more ”unstable” energy i.e. Renewable energy
–
Transferring electricity between households (two-way flow)
–
Optimizing consumption
–
Information and transparency behavioral changes
■
Could effect demand by real-time pricing (Price elasticity?)
■
Smart Kalasatama (http://fiksukalasatama.fi/en/), Fingrid’s Elvis (http://www.fingrid.fi/en/company/ELVIS/Pages/default.aspx)
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COST/
BENEFITS
■
Direct cost saving
■
Data privacy, cyber security
■
Investment costs: Scope of the project and technological convergence
■
Environmental effects and other externalities (technological: boost to other businesses)
■
Predicting and identifying electrical faults (security and cost saving)
Saara Kuhalainen
THE GAS MARKET IN
FINLAND
Teemu Riipi & Emma Mieskonen
Microeconomics: Policy
Case Study Presentation
Finland and Estonia are building a gas
pipe to join the countries and connect
Finland to the gas world market.
HOW WILL THE LOCAL GAS (ENERGY)
MARKET EVOLVE DUE TO THE OPENING
WORLD MARKET?
How will gas (energy) prices evolve?
– How does this influence the consumer side gains?
How will gas importation evolve?
– We will also evaluate how the decreasing dependence on a
single gas source affects the local market.
Setting the problem
Motivation & relevance
Literature review
Analysis & Results
Recommendations
Case:Guggenheim
• Helsinki’scitycouncilrecentlyrejectedlongplanned/discussedideaof
buildingGuggenheimartmuseuminHelsinki
• It’sbeenspeculatedthatcostsandbenefitsoftheproject,presentedto
decisionmakers,donotcompletelyreflectreality
• Whatshouldhavethecitycouncildoneineconomicsandcostbenefit
analysis?
• CBAwithnumberpresentedtodecisionmakers
• Sensitivityanalysisisthefocusofthiscase.Whatiftheestimateswerenot
completelyaccurate?
• Trytofindmoreaccuratedatawhereandifpossibletoperformanother
CBA
NIKO TEROMAA
Finland’s Biggest Startup
Case Talvivaara/Terrafame
• Cost-benefit analysis of keeping the mine operational vs. shutting down the
operation
• Elements of shutting down the operation:
• Time frame
• Cost of shutting down
• Employment effects?
• Elements of continuing the operation:
• Terrafame’s production projection
• Production projections gathered from media
• Varying prices – historical prices vs. Terrafame’s forecast
• We will discount the different costs and benefits to compare the different
alternatives
Joona Widgrén | Juhani Koskinen
HOUSING MARKET PRICE
CONTROLS: HITAS
- JOONAS MUSSALO
What is HITAS?
•
Owner occupied housing production – supply of
apartments under the market price
•
Aims to ensure that house prices reflect the actual
production costs
•
Price ceiling: maximum prices of HITAS apartments is
regulated
• Provide cheaper housing in Helsinki
• Build on plots leased by the city:
•
The plot is leased on a discounted price by the city
HITAS-JOONAS MUSSALO
Excess demand: lottery for a right to
buy a HITAS apartment: excess
consumer surplus for those
HITAS regulation is released 30 years
after the construction
Problems:
• Bought as an investment; no regulation on rental prices (=market prices)
• The closer the 30 year limit is the more likely HITAS houses are hoarded: à
Wait to make a profit à Rent or living in an apartment that is not an optimal
fit for you
Unanticipated removal of the HITAS system an regulation:
• Increased supply of apartments?
• Overall prices decline (à Gradual phase-out system to avoid crash?)
Overall effect on the markets depend on:
• Amount of HITAS apartments
• Difference in the HITAS price and corresponding market price
• Difference in the lot lease before and after the removal
LNG terminals between
Estonia and Finland
-Abhinav Sigdyal
Overview
• Baltic Conncector Oy : A state owned company in Finland.
• Set up in 2015 to implement the Finnish part for the
Balticconnector pipeline project.
• Elering Gaas AS a state owned company is Estonia responsible
for transporting natural gas from the Estonian border through
the transmission network to the agreed connection points.
• Aims to improve regional access, secure supply and promote
reliability of distribution.
• A EU project of common interest. A Priority project in
guidelines for trans-European energy network.
The Project
 Pipeline between Inkoo, Finland
and Paldiski, Estonia
 82 km offshore pipeline. 22 km in
Finland and 47 km in Estonia.
 Compression stations at Inkoo and
Kersalu
 Gas consumption nearly 3 billion
m3 (8% of total energy
consumption in Finland). Estonia
0.6 bn m3, Latvia 1.3 bn m3 and
Lithuania 2.5 bn m3.
 Balticconnector capacity at 2.6 bn
m3 a year.
Potential Benefits
• Currently only one supplier of gas to Finland: Gazprom (Russia)
• Allows for access to integrated regional market.
• End of energy isolation.
• Less dependence on imported Russian gas.
• Increase in competition (hence increased demand) and price
convergence
• Incentives to suppliers to bring alternative gas when
infrastructure is at place.
• Environmental objectives:
• 40% less carbon emission than coal. A bridge between fossil fuels and
clean energy?
• Also reduce maritime transportation costs.
Costs
• Estimated cost 250mn Euros, of which 187.5mn (75%) funded by
EU.
• Environmental concerns: Will the completion of project
preclude investment into other sustainable and renewable energy
source?
• Lifetime cost of operation and maintanence.
Contrast the costs/benefits of the project over longer time horizon.
• Costs related to the emissions reduction.
Lower emissions than coal but how will the project affect the
abatement cost of pollution.
Tentative Outline
• Brief overview of the energy market. (Finland, Baltics and the EU)
• Identify the incentives for the players involved.
• Identify the potential lifetime cost of the project and contrast with
the lifetime benefit that accrues.
• Analyze alternatives to the project if any?
• Weigh in the pros and cons
Summarize the findings and suggest a policy recommendation based on
the study.
Case: Financial services regulation
Topic: changes in financial services regulation affecting the
monopoly position of Euroclear Finland (the central securities
depository of Finland)
What happens in the market for securities services?
“Classic” monopoly case
Challenge: market definition
Will there be a uniquely Finnish market for securities services
afterwards?
How to model market changes?
Spillover effects?
e.g. choice of listing location
Ville Potka
Microeconomics: Policy
Policy case: Affordable care act (“Obama Care”)
- Why hasn’t it worked and how to redesign it?
1. What and why
• Background: A private health insurance system; many with employer coverage, remainders
left without è Affordable care act
• A marketplace was created – customers enrolling and firms entering/exiting
2. Problems in the policy
• Less enrolment of “healthy” citizens è riskier customer pool è increasing prices
• Firms have exited/not entered the market due to i.e. profitability concerns è less
competition
3. What should be done in order it to work better
• Methods to incentivize enrolment
• Firm subsidies, methods to improve competition
Sara Halonen
Anna-Leena Hetemäki
Case Talvivaara: a quantitative CBA
I intend do a quantitative CBA on Talvivaara (the problematic
Finnish mining company)
My main interest and focus: the stochastic nature of nickel
(main output) price and the real option embedded in the mine
The goal is to consider the Finnish public interest: does
continuation make sense or should the mine be ramped down
Plenty of work to be done to figure out the details:
General background information on the case
Available options
How to value the options?
Data sources and utilized (base case) figures?
A second look at how to conduct a CBA analysis
The level of attention to details depends on how
time-consuming doing all this will turn out to be!
Lauri Kauppinen
31E12100 Microeconomics: Policy - Case study presentation
Case-Exercise: Talvivaara/Terrafame
Ø Cost benefit analysis on whether the government should
continue to invest in Talvivaara
Ø Step 1: Talvivaara as an investment
Ø Forecasting nickel prices
Ø Analyzing how much money Talvivaara needs to ramp-up
their operations and return to profitability
Ø Step 2: Costs related to closing Talvivaara down
Ø Unemployment benefits
Ø Residual costs
Ø Step 3: Policy recommendation
JussiJarvi&RistoHurmeranta
Case study: Guggenheim Helsinki
i) Problem
Problem description: Should the city of Helsinki have supported building of the Guggenheim
museum?
• Pros:
• Positive externalities
• Supporting activities, increased entrepreneurship in city tourism business
• Challenges:
• Opportunity costs  Is there a better way to maximize welfare?
• Who carries the risk of the project?
• Is there a market failure?
ii) Results
Not available yet
iii) Relevance
•
Widely covered topic in the media ─ how to solve similar cases in the future?
•
Large economic impacts
•
How public sector maximises welfare of the citizens?
iv) Literature review
• Mainly about public sector policies: role of the public sector, market failure, urban planning,
subsidies, externalities
Case study: Guggenheim Helsinki
31E12100: Microeconomics: Policy
Ilkka Vuori
Perttu Kiviharju
6.12.2016
1
LNG terminal for Finland and Estonia
• The natural gas market has been in turmoil during this century due to shale gas revolution
in the US and investment in LNG infrastructure.
• 7 % of Finnish energy production is made using natural gas. All of the gas is provided by
Russian gas export monopoly Gazprom.
• Gazprom has been known to be a Russian tool of foreign policy. Gas prices in different
countries have reflected political relations between the countries rather than normal
monopoly marginal cost based pricing.
• While the spot market price for LNG remains higher than the price of Gazprom most of the
time, terminal might provide a bargaining leverage for bilateral monopoly situation.
• LNG import terminal is a long term investment in rapidly changing market that cannot be
analyzed from the economic efficiency standpoint by comparing spot prices against long
term contract prices alone.
• To define whether LNG terminal is an economic investment rather that energy security tool
extensive reasearch is required on further plans for gas transportation infrasturucture,
production forecasts, energy consumption, climate change agreements obligations and so
on.
ANTON NIKOLENKO
Case: Spectrum Auctions
Microeconomics:
Policy Kalle Piiroinen
Outline
• Introduction
– Description/Background
– Auctions vs other allocation methods
• Spectrum auctions
– Objectives
– Considerations
• Analysis of auction models
– N>Q
– N≤Q
• Recommendations
– Case: Finland