A powerful tool for more responsible decision-making

Have you ever felt sceptical about a claim that a company, programme or policy creates hundreds of thousands of jobs or contributes several percent to GDP? You’re not alone.

As economic impact assessment specialists, we spend a lot of time rigorously calculating past or future economic impact, and addressing inevitable questions that arise from economic claims. Below we’ll break down (i) why we use economic impact assessment, (ii) why economic impact assessment may rightly elicit a healthy dose of scepticism, and (iii) how we can address that scepticism by making economic impact assessments as transparent and effective as possible.

We use economic impact assessment to inform important regulatory, advocacy, programme and business strategy decisions.

We use economic impact assessment to inform important regulatory, advocacy, programme and business strategy decisions.

However, as weather forecasting of the business world, economic impact assessment is often rightly met with a healthy dose of questioning.

Economic impact assessment predicts the past (“ex-post”) or future (“ex-ante”) socioeconomic consequences of economic decisions, policies, programmes or events. For sceptics, the complexity of these assessments - often involving intricate models, assumptions, and analysis techniques - opens the door for manipulation and bias, as different methodologies can yield vastly different results. Additionally, the long-term nature of ex-ante economic impacts makes predictions inherently uncertain. Scepticism therefore plays a healthy role in reminding decision-makers that impact assessments are estimations, and understanding the underlying methods and assumptions is central to understanding the results.

By measuring and illuminating the risks, opportunities and trade-offs of different decisions, economic impact assessment helps policymakers and businesses to make more informed decisions and be held accountable.?Importantly, the value of economic impact assessment is not always in the specific numbers (“Our project contributes $5 billion to GDP and 20,000 jobs”), but rather the ability to compare estimated impact across interventions and ensure that the wider economic impact of companies or interventions is accounted for when designing policy or business strategies.

So, what are some of the tricks to making economic impact assessment more effective?

• The golden rule is transparency.?Economic impact assessment is heavily reliant on economists’ best assumptions about the world, which should be clearly stated in any economic impact assessment report. Our rule is that anyone should be able to repeat the analysis using the stated assumptions and come out with the same numbers.?
• Consider “opportunity costs” (the value of the next best alternative) when evaluating policies and interventions.?By examining how funds would be used or markets would operate without the intervention, economists can more accurately attribute impact to the intervention. For example, a government programme might always seem beneficial if we don’t consider what other forfeited uses the funds could have had.

Supplement economic analysis with social costs and benefits for a more holistic and accurate assessment.?For instance, use multiple impact assessment methods (such as economic modelling, case studies or qualitative analysis), and disaggregate impacts across different stakeholder groups.

By acknowledging the limitations of economic impact assessment while harnessing its potential, we can leverage this powerful tool to drive more responsible and accountable decision-making.

?