20 Pages Posted: 30 Apr 2014
Date Written: April 28, 2014
Assessing regulatory benefits is crucial to cost-benefit analysis. And yet, quantification can be problematic, either because of the nature of the benefit themselves or because of uncertainty about achieving them. In such situations, Cass Sunstein calls for the use of a breakeven analysis based on a judgment about whether regulatory benefits are at least as high as costs.
Even assuming that cost-benefit analysis is the best way of making decisions when benefits can be readily quantified, breakeven analysis may or may not be the right approach when quantification is difficult. Instead, depending on the causes of the difficulty, we might want either to revert to more qualitative methods of decision-making or to move beyond breakeven analysis into more rigorous methodologies. Thus, the case for breakeven analysis remains unproven.
Keywords: cost-benefit analysis, unquantifiable benefits, ambiguity, uncertainty
JEL Classification: H43, I18, K23, K32, Q25
Suggested Citation: Suggested Citation
By Orly Lobel