On Balance: Review of “Teaching Benefit-Cost Analysis” by Scott Farrow

August 1, 2018 

By Joseph Cordes 

As the feasibility of using benefit-cost analysis (BCA) as a practical tool of policy analysis has increased, so too has the need for materials to aid those of us who are called upon to teach BCA. Teaching Benefit-Cost Analysis: Tools of the Trade, edited by Scott Farrow (Professor of Economics, University of Maryland, Baltimore County), is a distinctive and welcome addition to the collection of such materials.

The volume is part of the Elgar Guides to Teaching series from Edward Elgar Publishing. It differs from traditional textbooks on BCA in that teachers of benefit-cost analysis, rather than students, are the intended audience. The book comprises nineteen chapters, which are organized into two thematic sections; one section focuses on broad conceptual issues in undertaking benefit-cost analysis, and the other contains entries on specific issues that arise in implementing different types of BCA.

Topics covered in the conceptual section include classics such as consumer surplus as a welfare measure in BCA, the concept of standing, BCA decision rules, and market failure analysis as a basic underpinning of BCA. The remainder of the volume covers a diverse mix of specific topics. Some—such as the value of marginal analysis in BCA, the treatment of increases and decreasing in employment in BCA, BCA and addiction, the ingredients method of defining and measuring costs, distributional accounting, the use of case studies, and simulation in BCA—are of general relevance in any course on BCA. The chapters on valuing statistical lives and on applying benefit-cost or cost-effectiveness analysis to health policy would be of particular value to those tasked with teaching BCA in health policy programs or schools of public health. The chapters on using BCA to evaluate transport and land use decisions and government support of R&D provide important and interesting examples of how to apply BCA to public investments.

Each entry is compact and self-contained, allowing the potential user to focus on those issues of greatest interest. Entries typically include not only an exposition of the particular topic, but also potential readings and, in many cases, student problems to use in the classroom setting.

A particular strength of the volume is its coverage of topics that are not likely to be found in a standard benefit-cost analysis textbook. These include principles to be followed in defining the counterfactual (baseline) in a BCA, the role of partial equilibrium vs. general equilibrium analysis, and a brief primer on how to structure a BCA short course. Indeed, as I write this review, I find the chapter on defining the baseline to be extremely useful in commenting on an ANPRM (Advanced Notice of Proposed Rulemaking) concerning BCA that was recently issued by the U.S. Environmental Protection Agency. Other topics receiving treatment in the volume that are not covered extensively in most texts, if at all, are the ingredients method of cost analysis, the treatment of changes in employment, and distributional accounting.

As someone who teaches both a “standard” BCA class to students in a Master’s in Public Policy Program , and a short course in BCA for government and nonprofit professionals, I can see several possible uses for the volume. The most obvious is to improve the coverage of standard topics, such as decision rules, marginal analysis, and the value of a statistical life. Another is to add depth by including some of the topics highlighted above as often not receiving as much treatment as they deserve.

Another use would be to assign selected chapters as readings for the students. The entries are generally well-written and most are pitched at a level of technical detail to make the material accessible to any student who has had a prior course in intermediate microeconomics. The exceptions to this rule are the chapters on measures of welfare change, partial and general equilibrium, and uncertainty and risk, which would make excellent additions to more advanced courses in BCA.

A potentially significant limitation of the volume is its cost--$125.00. A possible suggestion for Edward Elgar Publishing would be to consider creating an on-line version of the volume, to allow instructors to “pay by the piece” for the chapters that they would find most useful. Even at the stated price, however, Teaching Benefit Cost Analysis passes its own “benefit-cost test.” Namely it is certainly worth the cost for university libraries to order the volume. Moreover, it deserves to be on the shelves of those among us who teach BCA on a regular basis—alongside standard textbooks in BCA, several of which have been authored or co-authored by the contributors to this useful volume.

 
Addendum:  Since preparing this review, the author has learned that Edward Elgar is offering Teaching Benefit-Cost Analysis at a reduced price of $117 online.  The book is also available for $40 or less as an ebook.  The hardcover can be purchased directly from this page, which also includes links to purchase the e-book from eBooks.com or Google Play. A paperback version will be availible in Spring 2019. 
 

Joseph Cordes is Professor of Economics, Public Policy and Public Administration, and International Affairs at The George Washington University.  He is a past president of the Society for Benefit Cost Analysis and has taught benefit cost analysis both to Master's students and working professionals for the past 20 years.