A fundamental question in economics is: What is the appropriate role of government? The Thomas Cook collapse this September is a reminder that this isn’t straightforward. The British government didn’t deem Thomas Cook to be ‘too big to fail’ – so no bank-style bailout. But repatriation will still cost taxpayers an estimated £100mn. In a market economy firms in every sector can and do fail. Governments need to think about how risks should be allocated ahead of any failure and design policy accordingly. This is particularly important where firms are providing public services, as we learned rather quickly with the collapse of Carillion in 2018.
Cost-benefit analysis HS2
HS2 is a fascinating case study for any cost-benefit analysis (CBA) course. With the recently launched independent review of its costs and benefits (see here) I thought I’d draw your attention to some interesting commentary:
- Dieter Helm goes back to basics and asks what was the rationale for HS2 and what alternatives were considered – both important first steps for CBA
http://www.dieterhelm.co.uk/regulation/transport/hs2-a-conclusion-in-search-of-arationale/ (external link), while
- Nick Macpherson has suggested that HS2 was largely a political decision and would probably now fail a CBA
https://twitter.com/ft/status/1109842706514305024 (external link) which links both to how we build in optimism bias and how spending decisions are ultimately a combination of politics and analysis.
I’ll be watching the HS2 review results closely. I’m particularly interested in how they deal with sunk costs given how far into the project we are.
Analytical Careers: Stick or twist?
Have you ever seen someone arrive in a new post, often to a fair degree of fanfare, only to move on quickly? This raises what I call the stick or twist question: you are new to a post but three months in it doesn’t feel right – do you ‘stick’ or ‘twist’? When people look back on their career, they often see instances where roles that started badly got a lot better but also where the situation never really improved. Given that it always takes time to settle in, how long should you give yourself to make these decisions?
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