Positive versus Normative Justifications for Benefit-Cost Analysis: Implications for Interpretation and Policy

Hammitt, James K. (2013) Positive versus Normative Justifications for Benefit-Cost Analysis: Implications for Interpretation and Policy. Review of Environmental Economics and Policy, 7 (2). pp. 199-218.

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Official URL: http://tse-fr.eu/pub/28508

Abstract

What is the rationale for benefit-cost analysis (BCA)? The answer is critical for determining how BCA should be conducted and interpreted, and identifying its implications for policy. This article examines two possible justifications for BCA: positive and normative. The positive rationale is that BCA identifies policy changes whereby those who benefit could, in theory, compensate those who are harmed. The normative rationale is that BCA identifies social improvements (e.g., by approximating a utilitarian calculus or protecting against cognitive error in policy choice). The standard approach to BCA assumes that the positive and normative justifications coincide. However, when human behavior differs from what is assumed in standard economic models, these justifications may conflict. In this case, individuals may dislike a change in circumstances that economic models predict they should prefer. The positive justification for BCA is consistent with respect for individual autonomy and provides clarity about methodological choices in the analysis (i.e., that the objective is to incorporate people’s apparent preferences as accurately as possible), but it may also require accepting cognitive and behavioral errors that individuals would wish to avoid. The normative justification implies rejecting policies that the population may prefer and requires determining what preferences are normatively acceptable. The article argues that the choice of justification is part of a larger issue concerning the appropriate role of representative government.

Item Type: Article
Language: English
Date: 2013
Refereed: Yes
Uncontrolled Keywords: benefit-cost analysis, behavioral economics
JEL codes: D61 - Allocative Efficiency; Cost-Benefit Analysis
D81 - Criteria for Decision-Making under Risk and Uncertainty
H40 - General
Q50 - General
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:50
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:28508
URI: http://publications.ut-capitole.fr/id/eprint/16581

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