One of the key types of projects I work on is the economic impact study, which looks at how government expenditure, regulatory changes, public policy or commercial decisions have changed or will change the welfare of the country. \u00a0In order to carry out such an exercise, you must build a model which estimates economic activity (in terms of money spent and employment) under two scenarios – with and without the policy or commercial decision.<\/p>\n
Building the model is not necessarily the hard part. \u00a0Defining the two scenarios can take significant effort, in order to ensure that all potential impacts have been considered. \u00a0This is particularly true when the exercise is designed to look at impacts in the future, rather than how things may have been different in the past.<\/p>\n
It is usually relatively easy to define a scenario following the status quo, as most forecasts on demand, pricing and costs will have been carried out assuming no change in strategy. \u00a0Even where no forecasts already exist, it can be relatively simple to trend existing data forward. \u00a0However, understanding the counterfactual – the situation which does not exist – is more tricky. \u00a0Assumptions must be made over how changes in policy or strategy will affect the market. \u00a0These take the form of price elasticity of demand, consumer behaviour patterns, and assumptions over consequential actions so that a chain of impacts can be felt.<\/p>\n
The BBC reported<\/a> on a study<\/a> carried out in 2012 examining the impact of removing tolls from the Severn Bridge, carried out by Arup. \u00a0In this report, the counterfactual was driven by the idea that removing tolls would increase traffic, which would more than offset the reduction in revenue that the government would receive. \u00a0However, there were a number of assumptions needed to come to this conclusion, including (but not limited to):<\/p>\n It is clear to see from this list that assumptions are the cornerstone of counterfactual analysis. \u00a0Changes to assumptions can have significant impacts on the conclusions of a study – and as a result they can be the most effort-intensive part of such work.<\/p>\n","protected":false},"excerpt":{"rendered":" One of the key types of projects I work on is the economic impact study, which looks at how government expenditure, regulatory changes, public policy or commercial decisions have changed or will change the welfare of the country. \u00a0In order to carry out such an exercise, you must build a model which estimates economic activity … <\/p>\n\n