Benefit-Cost Analysis for Financial Regulation

2013 ◽  
Vol 103 (3) ◽  
pp. 393-397 ◽  
Author(s):  
Eric Posner ◽  
E. Glen Weyl
Keyword(s):  
Cost Analysis ◽  
Financial Markets ◽  
Financial Regulation ◽  
Allocative Efficiency ◽  
Social Value ◽  
Wall Street ◽  
Benefit Cost Analysis ◽  
The Social ◽  
Benefit Cost ◽  
Rule Making

Calls for benefit-cost analysis in rule-making, based on the Dodd-Frank Wall Street Reform Act, have revealed a paucity of work on allocative efficiency in financial markets. We propose three principles to help fill this gap. First, we highlight the need for quantifying the statistical cost of a crisis to trade off the risk of a crisis against loss of growth during good times. Second, we propose a framework quantifying the social value of price discovery, and highlighting which arbitrages are over- and under-supplied from a social perspective. Finally, we distinguish between insurance benefits and gambling-facilitation harms of market completion.

scholarly journals Appropriate Discounting for Benefit-Cost Analysis

2011 ◽  
Vol 2 (2) ◽  
pp. 1-20 ◽  
Author(s):  
David F. Burgess ◽  
Richard O. Zerbe
Keyword(s):  
Cost Analysis ◽  
Discount Rate ◽  
Cost Of Capital ◽  
Hyperbolic Discounting ◽  
Ease Of Use ◽  
Benefit Cost Analysis ◽  
The Social ◽  
Net Benefits ◽  
Benefit Cost

In order to be sensible about what discount rate to use one must be clear about its purpose. We suggest that its purpose is to help select those projects that will contribute more net benefits than some other discount rate. This approach, which is after all the foundation for benefit-cost analysis, helps to reconcile different suggested procedures for determining the discount rate. We suggest that the social opportunity cost of capital (SOC) is superior to other suggested approaches in its generality and its ease of use. We use the SOC to determine a range of real rates that vary between 6% and 8%. We suggest that approaches based on determination of preferences, which result in hyperbolic discounting, are less appropriate and less useful.

scholarly journals The Social Cost of Carbon, Greenhouse Gas Policies, and Politicized Benefit/Cost Analysis

2018 ◽  
Vol 6 (1) ◽  
pp. 59-76
Author(s):  
Benjamin Zycher
Keyword(s):  
Cost Analysis ◽  
Social Cost ◽  
Climate Impacts ◽  
Cost Calculation ◽  
Substantial Part ◽  
Social Cost Of Carbon ◽  
Benefit Cost Analysis ◽  
Climate Policies ◽  
The Social ◽  
Benefit Cost

Benefit/cost analysis can be a powerful tool for examination of proposed (or alternative) public policies, but, unsurprisingly, decisionmakers’ policy preferences can drive the analysis, rather than the reverse. That is the reality with respect to the Obama Administration computation of the social cost of carbon, a crucial parameter underlying the quantitative analysis of its proposed climate policies, now being reversed in substantial part by the Trump Administration. The Obama analysis of the social cost of carbon suffered from four central problems: the use of global benefits in the benefit/cost calculation, the failure to apply a 7% discount rate as required by Office of Management and Budget guidelines, the conflation of climate and GDP effects of climate policies, and the inclusion of non-climate effects of climate policies as co-benefits, as a tool with which to overcome the trivial temperature and other climate impacts of those policies. Moreover, the Obama analysis included in its “market failure” analysis the fuel price parameter that market forces are likely to incorporate fully. This Article suggests that policymakers and other interested parties would be wise to concentrate on the analytic minutia underlying policy proposals because policy analysis cannot be separated from politics.

scholarly journals Efficiency without Apology: Consideration of the Marginal Excess Tax Burden and Distributional Impacts in Benefit–Cost Analysis

2020 ◽  
Vol 11 (3) ◽  
pp. 457-478
Author(s):  
Anthony E. Boardman ◽  
David H. Greenberg ◽  
Aidan R. Vining ◽  
David L. Weimer
Keyword(s):  
Cost Analysis ◽  
Recent Article ◽  
Allocative Efficiency ◽  
Tax Burden ◽  
Distributional Effects ◽  
Benefit Cost Analysis ◽  
Benefit Cost ◽  
Distributional Impacts

AbstractSome issues in the application of benefit–cost analysis (BCA) remain contentious. Although a strong conceptual case can be made for taking account of the marginal excess tax burden (METB) in conducting BCAs, it is usually excluded. Although a strong conceptual case can be made that BCA should not include distributional values, some analysts continue to advocate doing so. We discuss the cases for inclusion of the METB and the exclusion of distributional weights from what we refer to as “core” BCA, which we argue should be preserved as a protocol for assessing allocative efficiency. These issues are topical because a recent article in this journal recommends ignoring the METB on the grounds that desirable distributional effects offset its cost. We challenge the logic of this article and explain why it may encourage inefficient policies.

Distribution in Benefit-Cost Analysis: A Review of Theoretical Issues

1976 ◽  
Vol 4 (2) ◽  
pp. 123-150 ◽  
Author(s):  
Walter Hettich
Keyword(s):  
Cost Analysis ◽  
Marginal Utility ◽  
Demand Curve ◽  
Social Value ◽  
Value Judgments ◽  
Benefit Cost Analysis ◽  
Explicit Analysis ◽  
Benefit Cost ◽  
Theoretical Issues ◽  
Distributional Issue

The paper investigates the distributional basis for benefit-cost analysis when utility functions are independent. The change in utility for any individual caused by a given project can be written as the product of the marginal utility of income (Λ) and the income equivalent (measured by the appropriate area under the demand curve). Three theoretical positions are possible to deal with the distributional issue. First, one may assume Λ to be the same for all those affected by the project. A second position admits that Λ is dependent on income and tries to determine how different people view their own marginal utilities of income. Finally, it is possible to define the marginal utility of income in terms of social value judgments. This requires a social welfare function which reflects either the collectivity's expressed consensus or the decision maker's own set of judgments. The first approach is most commonly adopted and most convenient for actual analysis. The paper advocates more explicit analysis of distributional effects than is commonly undertaken and disputes the claim that such analysis is outside the professional realm of the economist.

scholarly journals Benefit-Cost Analysis of Public Safety: Facing the Methodological Challenges

2017 ◽  
Vol 8 (3) ◽  
pp. 305-329 ◽  
Author(s):  
Maria Ponomarenko ◽  
Barry Friedman
Keyword(s):  
Cost Analysis ◽  
Research Agenda ◽  
Important Work ◽  
Benefit Cost Analysis ◽  
What Works ◽  
Methodological Challenges ◽  
The Social ◽  
The Many ◽  
Benefit Cost ◽  
Work Done

Although more than 100 billion dollars is spent each year on policing, we know very little about what works, and still less about whether the benefits of various policing policies and practices outweigh the costs. In particular, although there has been some important work done to assess the effects of various practices, and even to monetize some of the benefits of reducing crime, there has been virtually no attention paid to the other side of the benefit-cost equation: the social costs that particular policing practices potentially can impose. In February 2017, the Policing Project at NYU School of Law held a conference aimed at jumpstarting the use of benefit-cost analysis to assess policing practices, and to begin to tackle the many methodological challenges to doing so. Here, we provide an overview of the existing literature, identify the serious gaps that remain, and sketch out a research agenda for moving forward.

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