Panel Paper: Cost-Benefit Analysis in Theory and Practice: A General Review

Friday, November 9, 2012 : 8:00 AM
D'Alesandro (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Clive R. Belfield, City University of New York

This paper reviews the theory and practice of cost-benefit analysis (CBA) across major policy areas. First, we outline the economic foundations of CBA for use in deciding the optimal provision of public goods and regulation of externalities. We also address some of the critiques of CBA and argue that these “over-stylize” CBA as a rigid method for policy evaluation. Next, we provide evidence that CBA is implemented far too infrequently and evaluate the reasons for this under-use. We do note some practical objections to CBA, albeit ones that are rarely considered in existing critiques of the practice. Our third contribution is to illustrate how CBA can be used to illustrate the policymaking process.  We draw on practical examples that are intended to highlight the various ways in which policymaking is impaired either by a failure to use CBA or by an improper or incomplete use.  These examples span the realm of policymaking, including military decisions, crime policy, education policy, mega-events, and environmental legislation. We document how even a basic application of CBA would improve public policymaking.  Such improvement is, we argue, a sufficient justification for greater application of CBA.

Full Paper: