On Balance: A New Rationale for Not Including Certain Impacts in Benefit-Cost Analysis
This post is a summary of a paper I’ve written called “What’s in, what’s out? Towards a rigorous definition of the boundaries of benefit-cost analysis,” forthcoming in Economics and Philosophy. Students are typically told that benefit-cost analysis is an application of the potential Pareto criterion, which defines net benefit as the difference between the willingness to pay of winners for their gains from a policy and the willingness to accept of losers for their losses. If the difference is positive, the policy is a potential Pareto improvement, and we say that it generates positive net benefits. Economic philosophers have presented many objections to this definition, but none of these objections refutes the basic logic.