The Real World of Cost-Benefit Analysis: Thirty-Six Questions (and Almost as Many Answers)

Abstract:     

Some of the most interesting discussions of cost-benefit analysis focus on exceptionally difficult problems, including catastrophic scenarios, “fat tails,” extreme uncertainty, intergenerational equity, and discounting over long time horizons. As it operates in the actual world of government practice, however, cost-benefit analysis usually does not need to explore the hardest questions, and when it does so, it tends to enlist standardized methods and tools. It is useful to approach cost-benefit analysis not in the abstract but from the bottom up, that is, by anchoring the discussion in specific scenarios involving trade-offs and valuations. Thirty-six stylized scenarios are presented here, alongside an exploration of how they might be handled in practice. Open issues are also discussed.

Number of Pages in PDF File: 34

Keywords: Cost-benefit analysis, Office of Information and Regulatory Affairs, nonquantifiable benefits, discounting, climate change

JEL Classification: D02, D73, D78, I18, K23