Parsing Cost-Benefit Analysis

The more time I spend working on development economics, the more I see the tools of cost-benefit analysis applied to all sorts of regulatory and programmatic concerns. Undertaking a CBA is a skill that was not heavily emphasized in my undergraduate or graduate programs, though we were certainly introduced to it, but seems to be more and more important.

Cass Sunstein, a professor at Harvard, has a piece in the Columbia Law Review on his experience performing and evaluating cost benefit analyses for the US government. As someone knee-deep in a cost benefit analysis with myriad complications, it’s nice to see that the important and interesting questions are hard for everyone else, too.

The abstract is here, but all 46 pages are worth a read (there’s lots of footnotes, so it goes fast if you ignore them):

Some of the most interesting discussions of cost-benefit analysis focus on exceptionally difficult problems, including catastrophic scenarios, “fat tails,” extreme uncertainty, intergenerational equity, and discounting over long time horizons. As it operates in the actual world of government practice, however, cost-benefit analysis usually does not need to explore the hardest questions, and when it does so, it tends to enlist standardized methods and tools (often captured in public documents that are binding within the executive branch). It is useful to approach cost-benefit analysis not in the abstract but from the bottom up, that is, by anchoring the discussion in specific scenarios involving tradeoffs and valuations. In order to provide an understanding of how cost-benefit analysis actually works, thirty-six stylized scenarios are presented here, alongside an exploration of how they might be handled in practice. A recurring theme is the importance of authoritative documents, which may be altered only after some kind of formal process, one that reflects a form of “government by discussion.” Open issues, including the proper treatment of nonquantifiable values, are also discussed.


Author: ekfletch

I am an independent researcher on issues of gender, labor, violence, education, and children.

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