scholarly journals Behavioral economics and policy evaluation

2014 ◽  
Vol 5 (1) ◽  
pp. 89-109 ◽  
Author(s):  
Timothy J. Brennan
Keyword(s):  
Cost Analysis ◽  
Willingness To Pay ◽  
Behavioral Economics ◽  
Policy Evaluation ◽  
Direct Democracy ◽  
Cognitive Biases ◽  
Policy Issues ◽  
Benefit Cost Analysis ◽  
Benefit Cost ◽  
Benefits And Costs

Abstract:Behavioral economics posits a number of cognitive biases and limitations, which raises questions as to whether revealed willingness to pay equals true willingness to pay. If so, benefit-cost analysis, with a number of methodological advantages, would need to be replaced. Prior analyses of the issue by Sunstein, Sugden, and Bernheim and Rangel fail to offer guidance that would avoid substituting centralized judgments for decentralized information on benefits and costs. Alternatives including using post-implementation valuations, libertarian paternalism, and direct democracy on policy issues also have conceptual or practical limitations. A tentative suggestion is democratic delegation, somewhat appealing because it is already applied to cope with bounded rationality and non-efficiency values. Viewing benefit-cost analysis as a market analogue, and restricting the domain of behavioral economics to uninformed consumers, may be useful guides. The most important guidance may be to require very strong evidence of substantial choice failure before abandoning benefit-cost analysis.

What’s in, what’s out? Towards a rigorous definition of the boundaries of benefit-cost analysis

2021 ◽  
pp. 1-17
Author(s):  
Daniel Acland
Keyword(s):  
Cost Analysis ◽  
Willingness To Pay ◽  
Low Cost ◽  
Consumer Sovereignty ◽  
Benefit Cost Analysis ◽  
Rigorous Definition ◽  
Pareto Criterion ◽  
Definition Of ◽  
Benefit Cost

Abstract Benefit-cost analysis (BCA) is typically defined as an implementation of the potential Pareto criterion, which requires inclusion of any impact for which individuals have willingness to pay (WTP). This definition is incompatible with the exclusion of impacts such as rights and distributional concerns, for which individuals do have WTP. I propose a new definition: BCA should include only impacts for which consumer sovereignty should govern. This is because WTP implicitly preserves consumer sovereignty, and is thus only appropriate for ‘sovereignty-warranting’ impacts. I compare the high cost of including non-sovereignty-warranting impacts to the relatively low cost of excluding sovereignty-warranting impacts.

Accounting for the Distribution of Benefits and Costs in Benefit–Cost Analysis

2020 ◽  
pp. 1-21
Author(s):  
James K. Hammitt
Keyword(s):  
Cost Analysis ◽  
Decision Makers ◽  
Policy Choice ◽  
Alternative Evaluation ◽  
Benefit Cost Analysis ◽  
Transfer Programs ◽  
Net Benefits ◽  
Benefit Cost ◽  
Benefits And Costs

Abstract Benefit–cost analysis (BCA) is often viewed as measuring the efficiency of a policy independent of the distribution of its consequences. The role of distributional effects on policy choice is disputed; either: (a) the policy that maximizes net benefits should be selected and distributional concerns should be addressed through other measures, such as tax and transfer programs or (b) BCA should be supplemented with distributional analysis and decision-makers should weigh efficiency and distribution in policy choice. The separation of efficiency and distribution is misleading. The measure of efficiency depends on the numéraire chosen for the analysis, whether monetary values or some other good (unless individuals have the same rates of substitution between them). The choice of numéraire is not neutral; it can affect the ranking of policies by calculated net benefits. Alternative evaluation methods, such as BCA using a different numéraire, weighted BCA, or a social welfare function (SWF), may better integrate concerns about distribution and efficiency. The most appropriate numéraire, distributional weights, or SWFs cannot be measured or statistically estimated; it is a normative choice.

scholarly journals [Ir]rationality, Happiness, and Benefit-Cost Analysis: Introduction to the Special Issue

2016 ◽  
Vol 7 (1) ◽  
pp. 1-11 ◽  
Author(s):  
Lisa A. Robinson
Keyword(s):  
Cost Analysis ◽  
Behavioral Economics ◽  
Policy Design ◽  
Well Being ◽  
Special Issue ◽  
Benefit Cost Analysis ◽  
Design And Implementation ◽  
Societal Welfare ◽  
Benefit Cost ◽  
The Relationship

Behavioral economics and happiness research have many important implications for the conduct of benefit-cost analysis as well as for policy design and implementation. By identifying ways in which we may act irrationally and providing new perspectives on the relationship between our circumstances and our sense of well-being, this research raises numerous questions regarding the evaluation of individual and societal welfare and the desirability of alternative policies. In this special issue, we present a series of articles that explore these concerns and provide significant new insights.

Is Existence Value Appropriate for Regulatory Benefit–Cost Analysis?

2020 ◽  
Vol 11 (3) ◽  
pp. 441-456
Author(s):  
Seth Binder
Keyword(s):  
Cost Analysis ◽  
Cognitive Biases ◽  
Stated Preference ◽  
Natural Resource Economics ◽  
Cost Analyses ◽  
Existence Value ◽  
Benefit Cost Analysis ◽  
Ethical Frameworks ◽  
Existence Values ◽  
Benefit Cost

AbstractSince its introduction to the field of environmental and natural resource economics in the late 1960s, existence value has faced several critiques from economists, psychologists, and philosophers. Critics have taken aim at the notion’s conceptual ambiguity and lack of connection to observable behavior, its incompatibility with cognitive processes and its sensitivity to cognitive biases, and ethical shortcomings in applying existence values to environmental decisionmaking. Unlike some critiques of existence value that draw on cognitive and ethical frameworks for decisionmaking fundamentally at odds with stated preference methods and benefit–cost analysis (BCA), this paper takes as given the use and adequacy of both. It focuses on challenges to existence value per se, with respect to the ability of existence value estimates to contribute to benefit–cost analyses in a way that is consistent with qualities of BCA that its proponents value: the objectivity, commensurability, and moral salience of the values analyzed. In light of the challenges, inclusion of existence value in benefit–cost analyses is found to inevitably compromise the quality of the BCA with respect to each criterion.

scholarly journals Contingent Valuation: Is Some Number Better than No Number?

1994 ◽  
Vol 8 (4) ◽  
pp. 45-64 ◽  
Author(s):  
Peter A Diamond ◽  
Jerry A Hausman
Keyword(s):  
Cost Analysis ◽  
Willingness To Pay ◽  
Contingent Valuation ◽  
Damage Assessment ◽  
Survey Methodology ◽  
Market Outcomes ◽  
Benefit Cost Analysis ◽  
Benefit Cost ◽  
Embedding Effect ◽  
Better Than

Without market outcomes for comparison, internal consistency tests, particularly adding-up tests, are needed for credibility. When tested, contingent valuation has failed. Proponents find surveys tested poorly done. To the authors’ knowledge, no survey has passed these tests. The ‘embedding effect’ is the similarity of willingness-to-pay responses that theory suggests (and sometimes requires) be different. This problem has long been recognized but not solved. The authors conclude that current methods are not suitable for damage assessment or benefit-cost analysis. They believe the problems come from an absence of preferences, not a flaw in survey methodology, making improvement unlikely.

scholarly journals A retrospective assessment of the costs of EPA’s 1998 Locomotive Emission Standards

2014 ◽  
Vol 5 (2) ◽  
pp. 285-314 ◽  
Author(s):  
Elizabeth Kopits
Keyword(s):  
Cost Analysis ◽  
Total Cost ◽  
Benefit Cost Analysis ◽  
Retrospective Assessment ◽  
Emission Standards ◽  
Ex Post ◽  
Data Limitations ◽  
The Cost ◽  
Benefit Cost ◽  
Benefits And Costs

Abstract:While the need to update EPA benefit-cost analysis to reflect the most recent science is broadly acknowledged, little work has been done examining how well ex ante BCAs estimate the actual benefits and costs of regulations. This paper adds to the existing literature on ex post cost analyses by examining EPA’s analysis of the 1998 Locomotive Emission Standards. Due to data limitations and minimal ability to construct a reasonable counterfactual for each component of the cost analysis, the assessment relies mainly on industry expert opinion, augmented with ex post information from publicly available data sources when possible. The paper finds that the total cost of bringing line-haul locomotives into compliance with the 1998 Locomotive Emission Standards rule remains uncertain. Even though the initial per-unit locomotive compliance costs were higher than predicted by EPA, total costs also depend on the number of locomotives affected by the regulation. Over 2000–2009, the number of newly built line-haul locomotives was higher but the number of remanufactured line-haul locomotives was lower than EPA’s estimate.

scholarly journals Integrated Undergraduate Management Education: An Informal Benefit / Cost Analysis

2011 ◽  
Vol 1 (3) ◽  
pp. 57
Author(s):  
William L. Casey, Jr.
Keyword(s):  
Cost Analysis ◽  
Management Education ◽  
Assessment Data ◽  
Benefit Cost Analysis ◽  
Core Program ◽  
Benefit Cost ◽  
Benefits And Costs

This paper seeks to contribute to the literature of management education by evaluating assessment data on Babson Colleges integrated undergraduate management core program (IMC). Transitions from functionally isolated curricula to more integrated alternatives involve both benefits and costs, accruing to faculty, students and sponsoring institutions. The relative benefits and cost of the Babson program are weighted based on recent assessment initiatives at the college.

scholarly journals Behavioral Economics and the Conduct of Benefit-Cost Analysis: Towards Principles and Standards

2011 ◽  
Vol 2 (2) ◽  
pp. 1-51 ◽  
Author(s):  
Lisa A. Robinson ◽  
James K. Hammitt
Keyword(s):  
Cost Analysis ◽  
Behavioral Economics ◽  
Economic Valuation ◽  
Well Being ◽  
Relevant Information ◽  
Behavioral Research ◽  
Benefit Cost Analysis ◽  
The Status ◽  
Principles And Standards ◽  
Benefit Cost

As traditionally conducted, benefit-cost analysis is rooted in neoclassical welfare economics, which, in its most simplified form, assumes that individuals act rationally and are primarily motivated by self-interest, making decisions that maximize their welfare. Its conduct is evolving to reflect recent work in behavioral economics, which explores the psychological aspects of decisionmaking. We consider several implications for analyses of social programs, focusing largely on economic valuation. First, benefit-cost analysis often involves valuing nonmarket outcomes such as reductions in health and environmental risks. Behavioral research emphasizes the need to recognize that these values are affected by psychological as well as physical attributes. Second, benefit-cost analysis traditionally uses exponential discounting to reflect time preferences, while behavioral research suggests that individuals’ discounting may be hyperbolic. While the appropriate rates and functional form are uncertain, market rates best represent the opportunity costs associated with diverting funds to support a particular social policy or program. Such rates reflect the intersection between technological progress and individual preferences, regardless of whether these preferences fit the standard economic model or a behavioral alternative. Third, behavioral research emphasizes the need to consider the influence of other-regarding preferences on valuation. In addition to acting altruistically, individuals may act reciprocally to reward or punish others, or use the status of others as the baseline against which to assess their own well-being. Fourth, behavioral economics identifies factors that can help researchers develop valuation studies that provide well-informed, thoughtful preferences. Finally, while behavioral research has led some to argue for a more paternalistic approach to policy analysis, an alternative is to continue to focus on describing the preferences of those affected by the policy options while working to ensure that these preferences are based on knowledge and careful reflection. Benefit-cost analysis can be best viewed as a pragmatic framework for collecting, organizing, and evaluating relevant information.

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