Cambridge Elements has created a series on Public Economics, edited by Robin Boadway, Frank Cowell and Massimo Florio. This is part of a major project by Cambridge University Press, which is intended to provide peer-reviewed analytical surveys and frontier topics in all the disciplines. We happily note that the first published “Element” in this series is Cost Benefit Analysis, by Per-Olov Johansson and Bengt Kriström (2018). Cost-Benefit Analysis is available as a free download for a limited time, and is for sale (relatively inexpensively) in print at Cambridge and at online booksellers, such as Barnes and Noble. The Element is just above eighty pages (plus a short technical annex and a long list of references).

On September 24, 2018, experts gathered at the George Washington University (GW) to commemorate the 25th anniversary of Executive Order (E.O.) 12866—Regulatory Planning and Review—and discuss the implications of its provisions and future prospects. The Society for Benefit-Cost Analysis (SBCA) cosponsored the event with the GW Regulatory Studies Center, ABA Section of Administrative Law and Regulatory Practice, and the Trachtenberg School of Public Policy and Public Administration. (Additional information on the event, including commentaries by the speakers, and videos when they become available, are posted on the GW website.)

A new article in the Fall Issue of the Journal of Benefit-Cost Analysis (JBCA),  “Some Pitfalls of Practical Benefit-Cost Analysis,”  describes common pitfalls that well-meaning analysts fall into. Over the past 23 years I have worked on and supervised hundreds of benefit-cost analyses. Most of these analyses have dealt with public health regulations proposed by the Food and Drug Administration, although on occasion I have reviewed analyses from other government agencies and academia. I’ve seen these pitfalls occur many times and at one time or another I’ve been guilty of most of them.

September 2018 marks the 25th anniversary of Executive Order (EO) 12866, which requires U.S. federal agencies, “in deciding whether and how to regulate, [to] assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating.” It further states that, “in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach.”

As the feasibility of using benefit-cost analysis (BCA) as a practical tool of policy analysis has increased, so too has the need for materials to aid those of us who are called upon to teach BCA. Teaching Benefit-Cost Analysis: Tools of the Trade, edited by Scott Farrow (Professor of Economics, University of Maryland, Baltimore County), is a distinctive and welcome addition to the collection of such materials.

Pricing Lives: Guideposts for a Safer Society  (Princeton University Press, 2018) is a tour de force. It provides an entertaining, accessible account of the modern approach to valuing mortality risk. In non-technical prose, it covers the major aspects of the approach and how it should be applied to social decisions.  It shows how US regulatory agencies’ adoption of the ‘value per statistical life’ (VSL) to replace the ‘cost of death’ (i.e., human capital) approach has led to more-protective regulation and argues the VSL approach should be extended beyond regulation, to private-sector decisions about product design and to government sanctions for regulatory violations. It also finds that the values used outside the US are typically far too small; revising these upward would lead to more-protective and more-appropriate regulation in other countries.

Despite the obvious attraction of Benefit-Cost Analysis (BCA) for policy evaluation, its implementation rate varies across countries and sectors. Although the concept of BCA can be traced back to European thinkers, it was first applied in the United States. The evaluation by the U.S. Army Corps of Engineers’ of the U.S. Flood Control Act of 1936 is often regarded as the first use of BCA, but President Ronald Reagan’s Executive Order 12291 issued in 1981 provided considerable impetus to its use in the United States. Although perceptions of BCA as anti-regulatory caused some adversaries of BCA to argue for its elimination in policy making, BCA is now viewed also as a tool to promote regulation.

Recent years have witnessed growing demand for economic appraisals of policies in different sectors in Europe, but the implementation rate is still low compared to that in the United States. The United Kingdom is considered the early adopter of BCA in Europe with appraisals of transport projects in the early 1960s. At the European level, represented by the European Commission (EC) within the European Union (EU), while BCA was used for policy evaluation in the early 1990s, the rate of use was very low. More recently, however, the application of BCA has risen, accompanied by the availability of national guidelines and manuals on how to conduct BCA, as well as by the development of the EC’s Guide to Cost-Benefit Analysis of Investment Projects for Cohesion Policy 2014-2020, which evolved from a brief document to a comprehensive document (now in its 5th version) backed by EU legislation.

Proper application of the value of a statistical life (VSL) is essential to preventing the systematic undervaluation of life throughout the world. The values used by U.S. federal agencies to monetize prospective risk reductions formerly were too low but have increased over time and are now in a range consistent with the economic literature. However, the values agencies assign to fatalities in setting regulatory sanctions are extremely low—often a fraction of the current estimates for VSL estimates used in regulatory contexts. Further, other countries still monetize risk reductions using techniques that undervalue life relative to VSL estimates. 

As a teacher of benefit-cost analysis (BCA), the review by the current administration of the Clean Power Plan (CPP), a cornerstone of the Obama era climate change regulations, presents what we often call “teachable moments.” Specifically, how could the CPP produce benefits that exceed costs in the Obama administration and then costs that exceed benefits in the Trump administration? 

The Journal of Benefit Cost Analysis and the Policing Project at New York University School of Law teamed up to host a symposium on the use of benefit-cost analysis in a domain in which it is all too absent: policing. (Policing tends to have many definitions, but generally we mean it here to refer to any use of force or surveillance of the populace for reasons of achieving public safety.) The goal of this Symposium on Benefit-Cost Analysis of Policing Practices, and the conference that preceded it, is to interest more scholars in working in this vital field, and to identify and begin to tackle some of the methodological challenges the field faces.

Rational action lies at the heart of neoclassical economics. Sovereign consumers make choices that maximize their utilities. By observing the tradeoffs implicit in actual choices, or eliciting tradeoffs for hypothetical choices, benefit-cost analysts impute willingness to pay for desirable policy impacts and willingness to accept undesirable ones. Yet, it appears that sometimes consumers seem to make mistakes. The field of behavioral economics seeks to provide a more realistic psychological model of consumers and other economic actors that helps us understand apparent deviations from neoclassical rationality. The 2017 Nobel Memorial Prize in Economic Sciences recognizes Richard H. Thaler’s pioneering contributions to behavioral economics.