What's in, what's out? Towards a rigorous definition of the boundaries of benefit-cost analysis. (24th March 2022)

• Record Type: Journal Article
• Authors: Acland, Daniel
• Is Part Of: Economics and philosophy. Volume 38:Number 1(2022)
• Page Start: 34
• Page End: 50
• Publication Date: 2022-03-24
• Subjects: benefit-cost analysis -- consumer sovereignty -- willingness to pay -- welfare; Economics -- Philosophy -- Periodicals; 330.01
• DOI: 10.1017/S0266267120000486
• Languages: English
• ISSNs: 0266-2671

Abstract

Abstract: Benefit-cost analysis (BCA) is typically defined as an implementation of the potential Pareto criterion, which requires inclusion of any impact for which individuals have willingness to pay (WTP). This definition is incompatible with the exclusion of impacts such as rights and distributional concerns, for which individuals do have WTP. I propose a new definition: BCA should include only impacts for which consumer sovereignty should govern. This is because WTP implicitly preserves consumer sovereignty, and is thus only appropriate for 'sovereignty-warranting' impacts. I compare the high cost of including non-sovereignty-warranting impacts to the relatively low cost of excluding sovereignty-warranting impacts.