Time in Cost-Benefit Analysis

4 Irvine Law Review, 2015, Forthcoming

26 Pages Posted: 5 Oct 2014 Last revised: 10 Mar 2015

See all articles by Arden Rowell

Arden Rowell

University of Illinois College of Law

Date Written: October 3, 2014

Abstract

Agencies are accustomed to considering questions of discounting — the process that makes monetary amounts comparable through time. But valuing the future is a distinctive enterprise for reasons that go beyond discounting. This Article explores two basic features of time that create challenges for intertemporal decision making: (1) time’s physical asymmetry, which makes relationships between the present and the future necessarily nonreciprocal, and (2) the subjective experience of time as continuously flowing, which creates definitional challenges in categorizing segments of time as “the future.” Although these features of time may affect any decision procedure, they have particular and concrete implications for the quantitative form of cost-benefit analysis on which American regulatory agencies routinely rely. First, because temporal asymmetry makes present/future relationships nonreciprocal, and because cost-benefit analysis lacks any intrinsic tool for managing distribution, there is a heightened need for supplemental distributional tools when cost-benefit analysis is performed intertemporally. Second, cost-benefit analysis relies upon quantification of the monetized value of future regulatory impacts — a process that depends on identifying the time at which those impacts accrue. Yet time flow creates systematic line-drawing challenges for decision makers who must distinguish between present and future events. To manage these, regulators should at least extend their analyses to the temporal break-even point, or the point in time where aggregate benefits of the rule equal aggregate costs. When decision makers compare future costs and benefits to current impacts, or even to foreign or other impacts, they should be wary of making cross comparisons that do not account for the distinctive qualities of future valuation.

Keywords: cost-benefit analysis, law and regulation, time, valuation, discounting, time flow, time asymmetry, entropy, quantification, regulatory benefits, intertemporal impacts, line-drawing, Coase, reciprocal risk

JEL Classification: A13, I18, I12, K1, K2, K3, K4, K20, K23, K32, K39, K40, K49, L50, L51, D70, D72, H43, Z1

Suggested Citation

Rowell, Arden, Time in Cost-Benefit Analysis (October 3, 2014). 4 Irvine Law Review, 2015, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2505231

Arden Rowell (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
135
Abstract Views
933
rank
230,764
PlumX Metrics