Cost-Benefit Analysis: Not a Suitable Approach For Evaluating Climate Regulation Policies

Abstract

Cost-benefit analysis is a widely used approach for guiding public sector policy decisions. Given the impetus provided by strong evidence of global warming, numerous scholars are now considering the role that cost-benefit analysis should play, if any, in assessing climate regulation policies, and are offering recommendations as to how this methodology can be better utilized in that context. However, that scholarship invariably overlooks the fact that conventional cost-benefit analyses implicitly embrace the untenable assumption that the genetic identities of future persons are exogenous with regard to the policies being evaluated. The conclusions of such cost-benefit analyses are therefore irrelevant to the real choices at hand, since genetic identity is in fact endogenous relative to the policies that we pursue. In other words, our current policies will not only have long-term impacts upon the wealth of future persons, they will also determine who those persons are, and that important consequence should not be overlooked. The various recommendations that these scholars offer with regard to improving cost-benefit valuation techniques for measuring the social cost of carbon emissions, or with regard to properly discounting future policy effects, are somewhat beside the point given the fundamentally inapt valuation comparisons that most cost-benefit analysts are making. This scholarship would perhaps be better directed at first of all developing some suitable means for incorporating the endogeneity of identity into cost-benefit analysis. In this short article I draw upon the work of Derek Parfit to demonstrate the devastating implications that recognition of the endogeneity of identity has for the relevance of conventional cost-benefit analysis for climate regulation policy. I also discuss and criticize for their failure to address this problem several recent efforts by leading scholars to critique and improve the application of cost-benefit analysis to climate regulation policy.

Keywords: cost-benefit analysis, climate regulation policy, non-identity problem, genetic identity, endogeneity of identity