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Rationality or Rationalism: The Positive and Normative Flaws of Cost-Benefit Analysis

21 Pages Posted: 2 Apr 2011  

Alexander Volokh

Emory University School of Law

Abstract

Environmental, health, and safety advocates, say Richard Revesz and Michael Livermore, have been wrongly hostile to cost-benefit analysis because of a false belief that it is biased against regulation. The bias against regulation, while real, has been the artifact of historical accident - the domination of cost-benefit discourse by antiregulatory advocates. In fact, cost-benefit analysis, neutrally applied, can easily be proregulatory, especially in health, safety, and environmental regulation. Proregulation types should, therefore, learn to stop worrying and confidently make their case in economic terms.

Dean Revesz’s pitch is partly political: advocates of regulation should use cost-benefit analysis to better achieve their goals, even if those goals come from a moral perspective that rejects economic reasoning. “Cost-benefit analysis,” after all, “is here to stay,” and “[d]ecisions [a]re [m]ade by [t]hose [w]ho [s]how [u]p.” But he’s also speaking on an intellectual level: cost-benefit analysis is not just “inevitable” but also “desirable,” because it correctly tells us which regulations are rational.

On the intellectual level, I believe that Dean Revesz gives short shrift to important theoretical, practical, and normative arguments against cost-benefit analysis: it may not be a coherent enterprise; if it’s coherent, it may not be possible to do it well; and if it’s possible to do it well, it’s not necessarily attractive on moral grounds.

On the political level, cost-benefit analysis can be more attractive: one can happily use theoretically indefensible means to pursue political ends that one desires for other reasons. For Dean Revesz’s intended audience - regulation advocates who have been historically suspicious of cost-benefit analysis - his thesis may well be right. But it has a corollary for free-market advocates who are hostile to regulation. Free-market advocates have mostly gone along with cost-benefit analysis because of a belief that it would serve as a brake on regulation. If Dean Revesz is right - if cost-benefit analysis, neutrally applied, can easily be proregulatory - perhaps natural-rights libertarians should reconsider their tolerance of cost-benefit analysis and focus more on making their case for deregulation in moral terms.

Keywords: cost-benefit analysis, environment, libertarian, regulation

JEL Classification: D61, H41, H43, I18, K23, K32, L51, Q26, Q28

Suggested Citation

Volokh, Alexander, Rationality or Rationalism: The Positive and Normative Flaws of Cost-Benefit Analysis. Houston Law Review, Vol. 48, No. 1, p. 79, 2011; Emory Law and Economics Research Paper No. 11-101; Emory Public Law Research Paper No. 11-150. Available at SSRN: https://ssrn.com/abstract=1800811

Alexander (Sasha) Volokh (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-712-5225 (Phone)
404-727-6820 (Fax)

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