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New Foundations of Cost-Benefit Analysis

Posted: 3 Oct 2006  

Matthew D. Adler

Duke University School of Law

Eric A. Posner

University of Chicago - Law School

Abstract

This book provides a systematic account of CBA as a welfarist decision procedure. We reject the traditional defense of CBA in terms of Kaldor-Hicks efficiency, and argue instead that CBA is a workable proxy for overall well-being. We also modify the preference-based account of well-being to which CBA is traditionally linked, and argue that preferences need to be self-interested and fully-informed to produce welfare. This view has many implications for the actual practice of CBA.

Chapter 1 summarizes and rejects traditional defenses of CBA. Chapter 2 provides the foundations for a new defense. It argues that that preferences must be idealized and self-interested to produce welfare; that interpersonal welfare comparisons are possible; and that overall well-being is morally relevant, if not morally decisive. Chapters 3 and 4 compare CBA with alternative administrative decision-procedures - such as intuitive balancing, safety-maximizing procedures, "feasibility" analysis, and others - and argue that CBA is the welfare-maximizing procedure, given decision costs, accuracy, and the political realities of the administrative state. Chapter 5 discusses possible modifications in the practice of CBA that flow from our account, such as the "laundering" of preferences, the rejection of environmental "existence values," and the use of distributional weights. Chapter 6 responds to standard objections to CBA, involving its insensitivity to rights and distribution; incommensurability; the discounting of future benefits and costs; the WTP/WTA disparity; and the valuation of human life. In considering these objections, it is important to understand that CBA is not itself a bedrock moral criterion, nor a superprocedure, but simply a practicable tool to implement one part of the moral bedrock - overall well-being.

Suggested Citation

Adler, Matthew D. and Posner, Eric A., New Foundations of Cost-Benefit Analysis. NEW FOUNDATIONS OF COST-BENEFIT ANALYSIS, Harvard University Press, 2006; University of Pennsylvania Law School, Public Law Working Paper No. 06-40; University of Pennsylvania, Institute for Law & Economics Research Paper No. 06-23. Available at SSRN: https://ssrn.com/abstract=934443

Matthew D. Adler

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Eric A. Posner (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-0425 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/posner-e/

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