Distribution and Disputation: Net Benefits, Equity, and Public Decision Making

Abstract

As its practitioners know well, benefit-cost analysis walks a fine line between the positive and normative, between the science of economics and the art of political economy. Missteps threaten to undermine its credibility as a value-free science, while overcaution risks irrelevance to the pressing questions of the day. As BCA adapts to give more weight to distributional concerns, while operating in a more highly charged political environment than ever before, these tensions will only grow. For perspective, I re-examine three prominent episodes in the history of economics where these issues were vigorously debated: (i) The founding of the NBER by Wesley Clair Mitchell, who insisted that the organization eschew all policy recommendations; (ii) the introduction of the modern definition of economics as study of tradeoffs by Lionel Robbins, who insisted welfare effects could never be aggregated; and (iii) the origins of benefit-cost analysis as a measure of income, which to first-generation practitioners seemed to foreclose the possibility of measuring "intangible" benefits like recreation opportunities, mortality risks, and equity. These episodes, together with critiques of economics from philosophers of science, suggest we are best served by being as transparent as possible about the ways values influence BCA reasoning, without arrogating political decisions into it.

Keywords: benefit-cost analysis, distributional analysis, history of economics, methodology

JEL Classification: D6, B2, B4, Q5