The Real World of Cost-Benefit Analysis: Thirty-Six Questions (and Almost as Many Answers)
34 Pages Posted: 11 Jan 2013 Last revised: 6 Jun 2013
Date Written: January 10, 2013
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.
Keywords: Cost-benefit analysis, Office of Information and Regulatory Affairs, nonquantifiable benefits, discounting, climate change
JEL Classification: D02, D73, D78, I18, K23
Suggested Citation: Suggested Citation