Monday, September 21, 2009

Cash for Clunkers

The Economists' Voice offers up a quick and easy cost-benefit analysis on the cash-for-clunkers program. Here is the summary from the website:
Burton Abrams and George Parsons of the University of Delaware evaluate the efficiency of the recently introduced 'Cash for Clunkers' program and conclude that the cost exceeds the benefit by approximately $2000 per vehicle.
In fact, things are worse than this because the authors omit the "excess burden", the social loss associated with raising the funds for the program via a distortionary tax system.

A crude version of this cost-benefit calculation could have been done ex ante by replacing some of the at-that-time unknown values with estimates. This should have been done and the program never should have seen the light of day.