A dynamic world
Direct effects like investments in the space sector are visible immediately, indirect effects may come with some delay, but external effects may take years to disseminate. When the impact of space related activities is to be determined, effects taking place both in the short and in the long run should be taken into account.
Accounting systems and statistical databases are designed for grasping existing patterns, taking place in the present and the (recent past). Existing structures offer limited opportunity for detecting structural (disruptive) changes. In order to detect, determine and quantify the effect of such changes, the utilization of old structures and methodologies will not suffice. Methods have to be adapted to the new circumstances, or even be replaced by new ones.
9 Pro memorie denotes an effect which is relevant (“to remember”), but which is not expressed in terms of welfare (i.e. money).
CONCEPTS AND DEFENITIONS 13
Table 2.1 Classification of actors and effects (examples in capital letters)
* higher equity prices caused by higher spending in the economy
An economic approach is very well suited for covering quantifiable direct and indirect effects, and most of the external effects. Most economic methodologies yield insights in quantifiable measures like jobs and added value. Stocks and flows of resources, goods and services, either expressed in volume or in monetary value, and prices are the essential dimensions of economic methodologies.10
Policy, base case and project case
The policy is the intervention under consideration, the ‘thing happening’ of which one wants to know the effects. A policy can for instance be an investment in a satellite or a tax reduction. The effects of an investment are measured by comparing a situation in which the policy is applied, with a situation without the policy applied. The situation without the policy is called the base case. Constructing the base case is not trivial. Apart from future developments, it involves
10 Monetary value is not to be confused with welfare. Money is the unit of account at a given point in time.
However, the sheer total in Euros or dollars of an investment or a consumer good is just an approximation of welfare. Monetary value is influenced by inflation and exchange rates.
Upstream
Direct / Indirect effects External effects Strategic Societal Environmental
Space sector
-defining where the money not spent on the investment, policies etcetera will end up. The situation with the policy applied, is referred to as the project case. For ex-ante evaluations, several project cases can be defined, which for instance vary in scope, size and timing. For ex post evaluations a comparison vis-à-vis a variety of base-cases could be made.
Ex post and ex-ante appraisal
The impacts of policies can be assessed afterwards (ex post) or before they have taken place (ante). Ex post appraisal involves measuring the effects that have taken place in reality, while ex-ante appraisal needs to forecast these effects. Ex-ex-ante appraisal usually begins with constructing one or more scenarios for the future, which serve as the base case. The impacts are then predicted in the context of these scenarios. In monetary appraisal methodologies, future impacts are usually discounted using a rate of time preference or discount rate. Measuring impacts ex post might seem simple at first sight because the impacts can be observed, but there is an important complication: the hypothetical base case or no-project-alternative is typically not observed and has to be predicted or constructed.
ESA is looking for the best methodology (or combination of methodologies) to assess the impacts of space investments ex post. The methodologies presented in this report are valid for both ex-ante and ex post evaluations.
Causality
A core concept in appraisal is causality: are certain changes caused by space programmes or not?
Research into causality requires information on similar changes in comparable situations. For instance, in ex post analysis of the effects of a space programme we may observe growing economic activity in the region where the programme was implemented. We do not, however, observe what would have happened without the space programme. This implies that this scenario has to be constructed or predicted in some way. One possibility to do this is to compare the developments in the regions involved to otherwise comparable regions (same country, similar characteristics) without space programmes.
We note that causality is not only an important issue in the effects of space programmes on firms and individuals, but also within space programmes themselves: one investment may only be useful if another investment is also made, and vice versa. Moreover, these synergetic investments may be made by different parties
PUBLIC INVESTMENTS IN SPACE 15
3 Methodologies
“Though this be madness, yet there is method in it.”
Hamlet, William Shakespeare Many methodologies are availble, but most of these are alternative names, specific subtypes, or combinations of a limited number of methodologies. Some of these methodologies are of a monetary nature, some are non-monetary.
Relevant criteria for the aptness of methodologies to assess these effects are completeness, feasibility, objectivity, clarity of calculations, clear advice, and acceptability. There is no ‘ideal’ methodology: each approach has its own advantages and disadvantages.
In this report six main monetary methods and two non-monetary methods are distinguished.
These as well as related methodologies found in the literature are listed in table 3.1.11 The monetary methods are described in section 3.1, the non-monetary methods in section 3.2. In section 3.3 the aptness of the various methodologies is determined.
Table 3.1 Overview of existing methodologies for economic appraisal
Methodology Abbreviation Linked terms used in literature
Monetary methods
Financial Analysis FA
Business Case & Investment Analysis & Portfolio Analysis.
Input-Output Analysis IOA Input-Output Models & Leontief Analysis
Computable General Equilibrium CGE
General Equilibrium Analysis & General Equilibrium Models & CGE Models & Spatial General Equilibrium Models & New Economic Geography (NEG) Models Cost Effectiveness Analysis /
Cost Utility Analysis CEA / CUA
Cost Effectiveness Ratio (CER) & Cost Utility Ratio &
Incremental Cost Effectiveness Ratio (ICER) Social Cost Benefit Analysis SCBA
Cost Benefit Analysis/Benefit Cost Analysis & Cost Analysis & Indicative or quick scan CBA
Social Return on Investment SROI SROI ratio & Social Impact Measurement
Non-monetary methods
Impact Assessment IA
Impact Analysis & Economic or Environmental Impact Analysis & Balance Sheet Analysis & Score Card Analysis & Analysis Key Performance Indicators &
Economic Effect Analysis & B.E.T.A
Multi Criteria Analysis MCA
Multi Criteria Decision Analysis & Outranking (MCA) Approach & Descriptive MCA & Value Function Approach & (Non-) Compensatory MCA & Dominance Approach & Conjunctive/Disjunctive Selection Approaches & Lexiographic Ordering &
Concordance/discordance Analysis & Linear Additive Models (LAM) & Analytical Hierarchy Process (AHP)
11 Besides these methodologies also many types of data gathering techniques can be discerned. Not all available techniques for data gathering are relevant when evaluating investments in space. In Appendix A an overview of techniques is divided into techniques relevant for evaluation of investments in space and techniques which are not suitable for this purpose.