Government Economic Service (GES) Assessment Centre Applied Economics and Public Policy Syllabus

Applied Economics and Public Policy syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Applied Economics and Public Policy in Government Economic Service (GES) Assessment Centre, not a summary of it.

1. 1

   The Green Book and Appraisal

   5 topics

   • HM Treasury Green Book methodology
     • The ROAMEF policy cycle
     • Rationale, objectives and options
   • Cost-benefit and cost-effectiveness analysis
     • Net present value and benefit-cost ratio
   • Discounting and the social time preference rate
     • Declining discount rates for long horizons
   • Valuing non-market impacts
     • Willingness to pay and stated preference
     • Value of a statistical life
   • Optimism bias and sensitivity analysis
2. 2

   Evaluation and the Magenta Book

   4 topics

   • Process, impact and economic evaluation
   • Theory of change and logic models
   • Choosing evaluation methods proportionately
   • Using evidence and what works centres
3. 3

   Sectoral and Regulatory Economics

   4 topics

   • Competition policy and the CMA
     • Merger control and market investigations
   • Regulation of utilities and networks
     • Price caps and RPI-X regulation
   • Health, education and labour market economics
   • Environmental and energy economics
     • Carbon pricing and net zero
4. 4

   Development and International Economics

   3 topics

   • Growth, poverty and inequality measurement
   • Trade, aid and development finance
   • Institutions and governance in development
5. 5

   Current Economic Affairs and Policy Debates

   4 topics

   • Reading the OBR, Budget and Spending Reviews
   • Cost of living, energy and inflation responses
   • Levelling up and regional policy
   • Forming a defensible view on live issues
     • Structuring an argument under questioning

Applied Economics and Public Policy flashcards for Government Economic Service (GES) Assessment Centre

24 of 57 cards from the Applied Economics and Public Policy deck — real questions with worked answers.

1. What is the HM Treasury Green Book?

   The UK government's central guidance on how to appraise and evaluate policies, programmes and projects. It sets out the framework for assessing whether an intervention provides value for money and is justified by reference to its objectives, based on social value (welfare of UK society) not just financial cost.

2. What are the five elements of the Green Book 'business case' (the Five Case Model)?

   Strategic case, Economic case, Commercial case, Financial case, and Management case. Together they test the rationale, value for money, deliverability, affordability and achievability of a proposal.

3. In the Green Book, what is the difference between social cost-benefit analysis (CBA) and social cost-effectiveness analysis (CEA)?

   CBA monetises all significant costs and benefits (including non-market impacts) and compares them in money terms, yielding a net present social value. CEA is used when key benefits cannot be reliably monetised; it compares the cost per unit of a single common outcome (e.g. cost per QALY, cost per tonne of CO2 abated) across options.

4. What is the formula for Net Present Value (NPV) used in appraisal?

   $$\mathrm{NPV} = \sum_{t=0}^{T} \frac{B_t - C_t}{(1+r)^{t}}$$ where $B_t$ and $C_t$ are benefits and costs in year $t$, $r$ is the discount rate, and $T$ is the appraisal horizon. A positive NPV indicates net social value.

5. What is the Benefit-Cost Ratio (BCR) and how is it interpreted?

   $$\mathrm{BCR} = \frac{\text{PV of benefits}}{\text{PV of costs}}$$ A BCR greater than 1 means benefits exceed costs. DfT conventions classify BCR $<1$ as poor, $1\text{-}1.5$ low, $1.5\text{-}2$ medium, $2\text{-}4$ high, and $>4$ very high value for money.

6. Why does the Green Book require discounting of future costs and benefits?

   Because society has a positive social time preference: people value benefits and costs received sooner more highly than the same amounts received later, due to time preference (impatience and risk of not surviving) and the expectation that future society will be wealthier (diminishing marginal utility of consumption).

7. What is the standard Social Time Preference Rate (STPR) recommended in the Green Book, and into what components does it decompose?

   The standard real STPR is $3.5\%$. It is the discount rate used to convert future values to present values and decomposes as $$r = \rho + \mu g$$ where $\rho$ is pure time preference plus catastrophe risk, $\mu$ is the elasticity of marginal utility of consumption, and $g$ is the expected per-capita consumption growth rate.

8. What are the standard Green Book values for the components of the STPR ($\rho$, $\mu$, $g$)?

   Pure time preference $\rho = 1.5\%$ (delta $0.5\%$ + catastrophe risk $1.0\%$); elasticity of marginal utility $\mu = 1$; expected growth $g = 2\%$. So $r = 1.5\% + (1 \times 2\%) = 3.5\%$.

9. What declining long-term discount rate schedule does the Green Book apply for very long-lived impacts?

   The rate declines for impacts beyond 30 years to reflect uncertainty about the future rate: $3.5\%$ for years 0-30, $3.0\%$ for years 31-75, $2.5\%$ for years 76-125, $2.0\%$ for 126-200, $1.5\%$ for 201-300, and $1.0\%$ beyond 300 years.

10. What reduced discount rate does the Green Book apply specifically to health (QALY/life) values, and why?

    A reduced rate of $1.5\%$ is applied to health values expressed in QALYs (the STPR without the $2\%$ growth-in-consumption term, i.e. $\rho$ only). This is because the value of health is not expected to grow with consumption in the same way, so only pure time preference applies.

11. What is the difference between market and non-market valuation, and name the main non-market valuation techniques.

    Market valuation uses observed prices; non-market valuation estimates the value of goods with no market price (e.g. clean air, time, biodiversity). Main techniques: revealed preference (hedonic pricing, travel cost, averting behaviour) and stated preference (contingent valuation, discrete choice experiments).

12. What is the distinction between revealed-preference and stated-preference valuation methods?

    Revealed preference infers value from actual market behaviour (e.g. house prices reflecting noise via hedonic pricing, travel cost to visit a site). Stated preference elicits value directly through surveys of hypothetical scenarios (contingent valuation asks willingness-to-pay; choice experiments infer it from trade-offs). Stated preference can capture non-use value but is prone to hypothetical bias.

13. What is 'optimism bias' in the Green Book and how is it corrected?

    Optimism bias is the demonstrated, systematic tendency for appraisers to be over-optimistic about project costs, durations and benefits. It is corrected by applying empirically-derived uplifts to costs (and adjusting timing/benefits) early in appraisal, with the uplift reduced as risks are identified, quantified and transferred.

14. What is the difference between sensitivity analysis and a switching value?

    Sensitivity analysis tests how the NPV/result changes when key assumptions are varied. A switching value is the specific value an input would have to take to change the decision, e.g. to make NPV exactly zero or to reverse the ranking of options. Switching values show how robust a conclusion is.

15. In the Green Book, what is the difference between risk and uncertainty, and how is each handled?

    Risk is where outcomes have known/estimable probabilities and can be handled with expected values, Monte Carlo simulation and risk premia. Uncertainty is where probabilities are unknown; it is handled with scenario analysis, switching values, and building in flexibility/real options.

16. What are the three broad types of evaluation, and what question does each answer?

    Process evaluation (was it implemented as intended, and how?); Impact evaluation (what difference did it make / what is the causal effect against the counterfactual?); Economic evaluation (did the benefits justify the costs — value for money, via CBA/CEA).

17. What is a 'counterfactual' in impact evaluation and why is it essential?

    The counterfactual is what would have happened in the absence of the intervention. It is essential because impact is the difference between observed outcomes and the counterfactual; without it, observed changes cannot be attributed causally to the policy (they may be due to other factors or trends).

18. What is a Theory of Change and how does it relate to a logic model?

    A Theory of Change explains how and why an intervention is expected to lead to outcomes, making causal assumptions explicit. A logic model is a structured representation, typically as the chain: Inputs -> Activities -> Outputs -> Outcomes -> Impacts. The Theory of Change adds the assumptions and context linking each step.

19. Define the logic-model terms: inputs, outputs, outcomes, and impacts.

    Inputs: resources used (money, staff, time). Outputs: what the activities directly produce (e.g. number of people trained). Outcomes: the changes that result (e.g. higher skills, employment). Impacts: the longer-term, higher-level effects on society/the economy attributable to the intervention.

20. What does it mean to choose an evaluation method 'proportionately', per Magenta Book guidance?

    Matching the rigour and cost of evaluation to the scale, risk, innovation and strategic importance of the intervention. Large, novel, risky or expensive programmes warrant robust impact evaluation (e.g. RCTs/quasi-experimental); small, well-understood, low-risk ones need only lighter process/monitoring evidence.

21. What is the UK's central guidance document on evaluation called, and what is its relationship to the Green Book?

    The Magenta Book is HM Treasury's central guidance on evaluation (design, methods and use), complementing the Green Book, which covers appraisal. Appraisal (Green Book) happens before delivery; evaluation (Magenta Book) assesses what actually happened.

22. In a hierarchy of evidence for causal impact, why is a Randomised Controlled Trial (RCT) considered strong?

    Random assignment to treatment and control groups means the two groups are, in expectation, identical in observed and unobserved characteristics. Any difference in outcomes can therefore be attributed causally to the intervention, eliminating selection bias and providing an unbiased estimate of the average treatment effect.

23. Name four quasi-experimental impact-evaluation designs used when an RCT is not feasible.

    Difference-in-differences (DiD); regression discontinuity design (RDD); instrumental variables (IV); and propensity score matching (PSM). Each constructs a credible counterfactual from observational data under specific identifying assumptions.

24. What is the difference-in-differences (DiD) estimator and its key identifying assumption?

    DiD compares the change in outcomes over time for a treated group with the change for a control group: $$\hat{\delta} = (\bar{Y}^{T}_{post}-\bar{Y}^{T}_{pre}) - (\bar{Y}^{C}_{post}-\bar{Y}^{C}_{pre})$$ Its key identifying assumption is the parallel trends assumption: absent treatment, both groups' outcomes would have followed the same trend.

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