Critique of cost-benefit analysis

Here is Lisa Heinzerling’s and Frank Ackerman’s critique of cost-benefit analysis, Pricing the Pricelesss: Cost-Benefit Analysis of Environmental Protection (they also discuss Larry Summers’ toxic waste memo). They write,

In recent years the use of “cost-benefit” analysis to set environmental standards has attracted a large and high-profile group of supporters. According to its advocates, cost-benefit analysis offers a way of achieving superior environmental results at a lower overall cost to society than other available approaches.

This view is mistaken. Cost-benefit analysis is a deeply flawed method that repeatedly leads to biased and misleading results. Far from providing a panacea, cost-benefit analysis offers no clear advantages in making regulatory policy decisions and often produces inferior results, in terms of both environmental protection and overall social welfare, compared to other approaches.

The paper is here (pdf).

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3 thoughts on “Critique of cost-benefit analysis

  1. What they say is nothing new to what many ecological economists have been saying for the last ten years. Also, they do not really give a better alternative to CBA. They mention a few mechanisms but nothing that governments can actually use in public policy to trade-off different policies against one another. It probably would have been better if they focused on some of the biases of the elicitation mechanisms of CBA, such as contingent valuation and choice modelling, and to how these biases can be problematic for law or public policy.

  2. Not being able to come up with an alternative to CBA now does not mean that the existing methodology is the best. We are all in the pursuit of a better or more refined methodology which can better capture environmental values. why should we wear the mask of complacency when the environmental integrity is at threat? What is wrong with a positive criticism that strives to arrive at a technique that could potentially expose an information asymmetry in the existing analytical procedure? The world now needs a critique more than ever !!

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