Environmental regulation, benefit-cost analysis and the policy environment in less developed countries

The general argument presented by Arrow et al. runs as follows: government regulation might improve on free market outcomes, since markets sometimes misallocate resources. However, the costs of regulations need to be assessed against their presumed benefits. Benefit-cost analysis is a valuable technique for making such an assessment, even though it was developed for the appraisal of physical investment projects. However, since the technique is not perfect, it should not provide the only input into the process, but rather be part of an array of evidence.