On Balance: Communicating about Benefit-Cost Analysis

 June 8, 2018 

By Kerry Krutilla 

It is challenging to explain benefit-cost analysis (BCA) to the general public or to members of other professions lacking sufficient knowledge of—and appreciation for—applied microeconomics. This post discusses the nature of this challenge, and raises the question: should the SBCA develop a more concerted communications strategy to better explain the fundamental concepts of the discipline and their practical application?

Part of the communication challenge faced by BCA practitioners is the one shared by any epistemic community. A specialized terminology and shared paradigm increase communication efficiency within the group, at the cost of communicating outside of it. This communication gap is especially consequential for the BCA field, however, because the purpose of BCA is to inform public decision-making. To do that, BCA practitioners have to communicate with other professionals involved in the policymaking process who may have their own disciplinary paradigms (e.g., scientists, engineers, and lawyers), as well as journalists and opinion-leaders, and of course, the general public. 

The nature of the BCA communication challenge is multi-faceted. First, terminology like “benefits,” “costs,” and “efficiency” have precise definitions within the discipline but are popularly used with a range of other meanings. Conceptual differences underlying the same terminology are common—such as the public perception that the term “benefit” applies to economic development objectives like “job creation” (Courant 1994) or to the receipt of transfer payments. Increased governmental revenue, or regional income associated with infrastructure projects, are commonly seen as benefits and represented as such in practitioner-produced “benefit-cost” analyses (Boardman et al. 1993).  

Beyond differences in language usage are differences in the way policy is perceived. The public often sees policy through the lens of stakeholder self-interest, rather than from a larger concept of the “public interest” (Krutilla 2005). From a typical stakeholder’s perspective, the economic efficiency measure—the sum of a policy’s net effects on everyone -- is less salient than are commonly-stated political objectives, such as better air quality,  small business growth, job creation, and the like. 

Heterogeneous stakeholders are not likely have a unanimous consensus about policy choices and this well-known reality, coupled with the fact that the benefits and costs of a public decision can fall on different groups, will create winners and losers. Stakeholder losses, unless widely diffused, are likely to be more salient than the relatively abstract notion that a portfolio of efficient policies and/or income transfers will probably leave everyone ultimately better off. Moreover, stakeholder conflict over public decision-making is likely to induce a “thinking fast” (Kahneman 2011) mindset disinclined to accept the logic and results of evidence-based analysis.

Relatedly, the public has philosophical differences about the kinds of issues for which tradeoffs are appropriate—as opposed to those that embody non-negotiable normative values. The very concept of weighing benefit against costs in decision-making over controversial issues, like the availability and cost of health care, is anathema to some constituencies. 

Underlying this catalogue of constraints are two basic issues: stakeholders are not knowledgeable about BCA principles, or do not have an incentive to accept them. Not much can be done about the incentives problem, but better communication might influence a persuadable audience interested in better information.

Some SBCA members are already reaching out to this audience (see, for example, Farrow 2013 and Farrow 2018). An article in the Journal of Benefit-Cost Analysis by Susan Dudley and others (Dudley et al. 2017), “Consumer’s Guide to Regulatory Impact Analysis: Ten Tips for Being an Informed Policymaker,” is directed at non-specialist policymakers and stakeholders. The Methods for Economic Evaluation Project  has developed a “reference case” designed to systematically describe a well-done BCA. W. Kip Viscusi’s new book, Pricing Lives (Viscusi 2018), which was reviewed recently  in “On Balance,” offers a lucid and informative discussion about the meaning and policy relevance of the “value of statistical life” (VSL). The George Washington University Regulatory Studies Center , among other organizations, regularly publishes work that reaches out to the broader audience. 

However, the BCA field lacks a coherent communications thrust comparable to that of “risk communication” in the risk analysis  field. The question is: does it make sense to have one? 

A first step towards a more organized communication strategy might be to develop an online library of materials that clearly describe the concepts of BCA in non-technical terms. Some of these documents already exist, and SBCA could collect or link to these. But the SBCA could also take the lead in developing short, understandable documents that could be used for public outreach. Such documents might include a primer on the role of economic efficiency in policy evaluation, or a series of notes on topics such as “Thinking about Jobs in Policy Evaluation” and “Efficiency versus Equity: The Difference and Why it Matters.” Presumably, the SBCA membership would have ideas about specific issue areas arising from their own professional experience.

The goal of this online resource would be to provide a foundation of information for a wide audience—the general public involved in understanding and influencing policy, members of the policy-making community that are using BCA to support decisions, economists seeking to work with scientists and others to bring BCA into the decision process, and members of the press who are reading economic analyses and interpreting the results for their readers. 

The purpose of this post is to see if there is enough interest in this idea to propose roundtables and panels for next year’s SBCA meeting, or to develop some actionable ideas about the way forward in the shorter or longer-term.

Afterword from Clark Nardinelli: 

The Program Committee for the 2019 annual conference encourages proposals for panels, roundtables, and presentations on Communicating Benefit-Cost Analysis. Proposals and sessions on developing communication materials, past communication tools and efforts, or proposed communication materials are all welcome. 


References

•    Boardman, A., Vining, A. and Waters, W.G. 1993. Costs and benefits through bureaucratic lenses: Example of a highway project. Journal of Policy Analysis and Management, 12(3):532-555.

•    Courant, P.N. 1994. How would you know a good economic development policy if you tripped over one? Hint: don't just count jobs. National Tax Journal, 47(4):863-881.

•    Dudley, S., Belzer, R., Blomquist, G., Brennan, T., Carrigan, C., Cordes, J., Cox, L.A., Fraas, A., Graham, J., Gray, G. and Hammitt, J., Krutilla, K., Linquiti, P., Lutter, R., Mannix, B., Shapiro, S., Smith, A., Viscusi, W. K., Zerbe, R. 2017. Consumer’s guide to Regulatory Impact Analysis: Ten tips for being an informed policymaker. Journal of Benefit-Cost Analysis, 8(2):187-204.

•    Farrow, S. 2013. How (not) to lie with benefit-cost analysis. The Economists’ Voice, 10(1):45-50.

•    Farrow, S. (ed). 2018. Teaching Benefit-Cost Analysis: Tools of the Trade. Edward Elgar Publishing.

•    Kahneman, D. 2011. Thinking, Fast and Slow. Farrar, Straus and Giroux.

•    Krutilla, K. 2005. Using the Kaldor‐Hicks tableau format for cost‐benefit analysis and policy evaluation. Journal of Policy Analysis and Management, 24(4):864-875.

•    Viscusi, W.K. 2018. Pricing Lives: Guideposts for a Safer Society. Princeton University Press.

Kerry Krutilla is Professor of Public Policy in the School of Public and Environmental Affairs, at Indiana University (IU) in Bloomington, and Co-Director for Benefit-Cost Analysis and Policy Evaluation at the IU Vietnam Initiative. His research is in the area of applied benefit cost analysis and political economy; he teaches courses in benefit-cost analysis and environmental economics.