On Balance

                                      

  April 11, 2018

  By W. Kip Viscusi

 Proper application of the value of a statistical life (VSL) is essential to preventing the systematic undervaluation of life throughout the world. This new post from W. Kip Viscusi       argues that the values used by government agencies to monetize prospective risk reductions should be consistent with the values estimated in the economic literature.  Doing so would   significantly increase the values used in many countries, such as the United Kingdom and Australia. Moreover, the values the United States assigns to fatalities in setting regulatory   sanctions are extremely low, which creates a disparity between the values used in setting regulations and the values used to enforce regulations. A more consistent approach would apply a value to sanctions that is comparable to the value used for VSL.

March 7, 2018 

By Elisabeth Gilmore

As a teacher of benefit-cost analysis (BCA), I find that current events often provide "teachable moments". The review by the current administration of the Clean Power Plan (CPP), a cornerstone of the Obama era climate change regulations, is one such event. Federal regulations that may have significant impacts on segments of the economy are subject to an assessment that contains a BCA. The CPP adopted under the Obama administration was accompanied by a finding that benefits exceeded costs. However, the revised estimates produced by the Trump administration indicate that costs exceed benefits. Each year, many students in my class question the usefulness of BCA in promoting good policy, often asking whether the BCA framework is too flexible, and therefore meaningless. Does this example support their skepticism? I am anticipating some tough questions from my students and here’s how I plan to answer them.As a teacher of benefit-cost analysis (BCA), I find that current events often provide "teachable moments". The review by the current administration of the Clean Power Plan (CPP), a cornerstone of the Obama era climate change regulations, is one such event. Federal regulations that may have significant impacts on segments of the economy are subject to an assessment that contains a BCA. The CPP adopted under the Obama administration was accompanied by a finding that benefits exceeded costs. However, the revised estimates produced by the Trump administration indicate that costs exceed benefits. Each year, many students in my class question the usefulness of BCA in promoting good policy, often asking whether the BCA framework is too flexible, and therefore meaningless. Does this example support their skepticism? I am anticipating some tough questions from my students and here’s how I plan to answer them.

February 12, 2017

By Barry Friedman 

The Journal of Benefit Cost Analysis and the Policing Project at New York University School of Law teamed up to host a symposium on the use of benefit-cost analysis in a domain in which it is all too absent: policing. (Policing tends to have many definitions, but generally we mean it here to refer to any use of force or surveillance of the populace for reasons of achieving public safety.) The goal of this Symposium on Benefit-Cost Analysis of Policing Practices, and the conference that preceded it, is to interest more scholars in working in this vital field, and to identify and begin to tackle some of the methodological challenges the field faces.

 

December 8, 2017

By Stuart Guterman

The Congressional Budget Office (CBO) plays an important role in the federal legislative process. CBO’s score on a given bill—that is, its estimate of how it would affect the federal budget deficit—can determine whether Congress decides to go forward with the bill, modify it to get a more favorable estimate, or simply drop it. Given their importance, debates over CBO’s scores and the methods they use to produce them can be as controversial as the bills that are being considered. While this controversy can be politically motivated (with advocates on either side of an issue arguing for a score that is more favorable to their position), it also stems from limited understanding of CBO’s intended role in the process—and reflects the difficulty of conducting analyses of benefits and costs in the context of policy decisions.

October 26, 2017

By David L. Weimer

Rational action lies at the heart of neoclassical economics. Sovereign consumers make choices that maximize their utilities. By observing the tradeoffs implicit in actual choices, or eliciting tradeoffs for hypothetical choices, benefit-cost analysts impute willingness to pay for desirable policy impacts and willingness to accept undesirable ones. Yet, it appears that sometimes consumers seem to make mistakes. The field of behavioral economics seeks to provide a more realistic psychological model of consumers and other economic actors that helps us understand apparent deviations from neoclassical rationality. The 2017 Nobel Memorial Prize in Economic Sciences recognizes Richard H. Thaler’s pioneering contributions to behavioral economics.

October 11, 2017

By Lynn A. Karoly

Since its founding in 2007, the Society for Benefit-Cost Analysis (SBCA) has sought to engage scholars and practitioners from across the world. The Society’s current rolls count members from 35 countries. In support of expanding the Society’s international scope, the SBCA co-sponsored a workshop on September 20, 2017—together with the University of Milan and the Centre for Industrial Studies (CSIL)—titled “The Role of CBA in Government Decisionmaking: International Perspectives.” The workshop was held in conjunction with the annual Milan Summer School on Cost-Benefit Analysis of Investment Projects organized by SBCA board member Massimo Florio and CSIL. 

September 18, 2017

Review by Donald S. Kenkel

Behavioral economics finds that under predictable circumstances people sometimes fail to act rationally and in their own best self-interest. In these circumstances, public policies can nudge people towards better choices. For example, people can be nudged to save more, smoke less, lose weight, and buy more energy efficient vehicles and appliances. In addition to providing new insights about how to design public policies (see Chetty 2015), behavioral economics also has implications for how we conduct benefit-cost analysis (BCA). After all, BCA is built on the foundation of neoclassical welfare economics and rationality. This topic has been explored over the years in the Journal of Benefit-Cost Analysis, notably in a March 2016 Special Issue on [Ir]rationality, Happiness, and Benefit-Cost Analysis

In his new book, "Behavioral Economics for Cost-Benefit Analysis" (Cambridge University Press, 2017), David L. Weimer (University of Wisconsin – Madison) pulls together the insights of behavioral economics to provide “useful guidance for those actually doing BCA.” Because behavioral economics has wide-ranging implications for almost any policy, members of the Society for Benefit-Cost Analysis will very likely find Weimer’s book of interest. 



August 14, 2017

by Susan E. Dudley

In the United States and elsewhere, government agencies are required to conduct regulatory impact analyses (RIAs) to weigh the benefits of regulatory proposals against their costs. These RIAs are invaluable tools for informing decision makers about the effects of regulatory choices; even regulatory decisions that are ultimately made on political, legal, ethical, or other grounds will benefit from the structured evaluation of tradeoffs and alternatives that a good RIA provides.

However, dense or complex RIAs can be challenging for policy officials and interested parties to comprehend and interpret, making it difficult to evaluate the evidence presented and to understand the likely consequences of alternative policy choices.

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