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On Balance: The Persistence of Appraisal Optimism in Benefit-Cost Analysis

In my paper for this journal earlier this year (Abelson, 2020), I discussed how seven official guides to benefit-cost analysis (BCA) and the leading international text on BCA (Boardman et al., 2018) deal with eight contentious issues: the issue of standing, core valuation principles, the scope of CBA, changes in real values over time, the marginal excess tax burden, the social discount rate, the use of benefit-cost ratios, and the treatment of risk. I did not discuss, however, arguably the most potent cause of poor BCA studies: appraisal optimism, which is sometimes referred to less courteously as appraisal bias. Indeed, appraisal optimism receives little attention in most BCA textbooks and official guides. I will attempt here a partial rectification of these omissions.

 

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On Balance: Recent Developments in the Market for Vaping Products and the Implications for Benefit-Cost Analysis

Since electronic cigarettes were introduced, in 2007, they have presented controversial public health tradeoffs. E-cigarettes provide users with the addictive chemical nicotine but without exposing them to the harmful combustion-generated toxicants in cigarette smoke. On the one hand, because smoking combustible cigarettes is estimated to lead to almost 500,000 deaths each year, e-cigarettes have great potential as a harm reduction strategy. In particular, evidence from randomized clinical trials shows that vaping e-cigarettes helps adult smokers quit. On the other hand, the growing popularity of vaping among teens raises concerns about nicotine addiction, the possibility that vaping is a gateway to smoking, and unknown future health consequences. More teens now vape e-cigarettes than smoke cigarettes. In the National Youth Tobacco Survey, the fraction of high school students reporting vaping within the past 30 days increased from 11.7 percent in 2017 to 27.5 percent in 2019, before dropping to 19.6 percent in 2020.  Some public policies – increasing the legal purchase to 21 and banning e-cigarette flavors popular with teens – try to target teen vaping. Other policies, most notably e-cigarette excise taxes, discourage both adult and teen vaping.

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On Balance: Should We Believe Willingness to Pay to Remove Novel Environmental Threats?

Novel threats call us to action. Witness the response to the 9/11 attack and more recently to the coronavirus. Such risks may be particularly compelling if citizens do not understand how to deal with the harm or because of ambiguity around the probability that the threat will be realized. 

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On Balance: Professional Principles for Benefit-Cost Analysts

Benefit-cost analysts essentially ask for a lot of trust. They look to inform policy decision-making by using a tool that boils very complex choices down to a seemingly simple comparison of the relative values of benefits and costs. If an analyst’s work is to be taken seriously, the decision makers must have confidence that the analyst is objective and competent, that the results being provided accurately capture what is known about any choice’s implications. The decision makers may have their own biases and interests and many choices will require decisions from a wide array of people with varying perspectives. But through the whole policy-making process, decision makers do not want to have to worry about hidden agendas, skewed data, or sloppy analysis in the information intended to inform their decisions.

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On Balance: New Editor, Same Mission

What a year it has been. Between the unfolding of a global pandemic and nationwide protests around the topic of police brutality, 2020 has already been a jam-packed year for public policy, and we haven’t even made it into election season.

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On Balance: COVID-19 Benefit-Cost Analysis and the Value of Statistical Lives

Reducing COVID-19 risks requires making extraordinarily difficult decisions that trade-off saving lives and economic damages. Benefit-cost analysis is well-suited for investigating these trade-offs and informing these decisions. However, interpreting and using the results requires understanding the framework and addressing its limitations, including the uncertainties in the value of mortality risk reductions and the distribution of impacts across those who are advantaged and disadvantaged. For related information, view JBCA Editor Tom Kniesner's conversation with W. Kip Viscusi.

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On Balance: Matthew D. Adler, Measuring Social Welfare: An Introduction, Oxford University Press, 2019. Review by James K. Hammitt, Harvard University

Benefit-cost analysis (BCA) is loosely interpreted as a method for determining whether a policy is ‘in the public interest’. More formally, BCA measures the effect of a policy change on each individual’s wellbeing as a monetary value and sums these values over the population. If the sum is positive, the policy change is declared a potential Pareto improvement, meaning the change plus some set of cost-free money transfers would be Pareto superior to the status quo (or other comparator).

 

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On Balance: Evaluating Policy Responses to the Opioid Epidemic

More than 450,000 Americans died of an opioid overdose between 1999 and 2018. There were fifteen fatal opioid overdoses for every 100,000 individuals in 2018, a ratio five times greater than in 1999. While public health researchers and policymakers have rightly turned their attention toward remedying the global coronavirus pandemic, the U.S. opioid epidemic continues to take lives. In my dissertation, An Empirical Analysis of Policy Responses to the Opioid Epidemic, I analyzed the effect of various state and federal interventions to reduce opioid abuse and overdoses. This analysis can contribute to the benefit-cost analysis of policies that aim to decrease opioid consumption and overdose deaths.

 

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On Balance: We Need a Proper Analysis of the Economic Costs of Social Distancing and Other COVID-19 Containment Measures

Economic management in Australia has effectively been outsourced to health experts. Political and business leaders are deferring exclusively to public health advice about how to contain the COVID-19 virus with no serious public discussion of the economic costs.

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On Balance: How Cost-Effectiveness Can Help People Hear Our Message

On the 26th of March, the Associated Press reported that, "Gov. Andrew Cuomo of New York has said that if all of his sweeping, expensive measures to stem the coronavirus saved one life, it would be worth it." This surely must be hyperbole, but he has also said, "We’re not going to accept a premise that human life is disposable… And we’re not going to put a dollar figure on human life." At the same time, it seems that there is an increasing call in public discourse for a sensible weighing of the pros and cons of "lockdown" measures, which I suspect anyone reading this blog would agree is a necessary component of good decision making. If Cuomo's sentiment about the value of life is shared among decision makers and the public, how do we get our benefit-cost message across in an effective way, that can actually improve the quality of public decision making, at this particular moment, in this particular context? 

 

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On Balance: Reflecting the State of the Science: Updating EPA’s Guidelines for Preparing Economic Analyses

The U.S. Environmental Protection Agency (EPA) has a long history of providing comprehensive guidance for conducting economic analyses, including benefit-cost analyses for environmental regulations. Much of that guidance is distilled in the EPA’s Guidelines for Preparing Economic Analyses, which was first released in 1983. The Guidelines are a mix of theory, empirical evidence, and practical recommendations and directives for ensuring the agency is providing the best available economic science for policy makers to consider when making decisions about regulatory actions.

 

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On Balance: Benefit-Cost Analysts Step Forward to Inform COVID-19 Policymaking

Being in the SBCA is great because it connects me with so many very smart people who care about public policy and benefit-cost analysis. This value was illustrated by the rapid rate at which the SBCA network began to exchange ideas and estimates about the benefits and costs of interventions to address the COVID-19 situation. As these ideas start to work their way into the more general media, I wanted to share a few observations with readers of On Balance about the challenges facing our community in conducting and interpreting these benefit-cost analyses.

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On Balance: The Costs and Benefits of E-Cigarette Policy

Currently, e-cigarette supporters and opponents are passionately debating what regulations to impose on the products, if any. These debates have been playing out in legislative chambers across the United States, ranging from city halls to Congress, and in federal agencies including the Food and Drug Administration (FDA). Proponents who argue for no or little regulation maintain that e-cigarettes save lives by helping people quit smoking. Opponents, meanwhile, argue that e-cigarettes themselves are addicting teenagers to nicotine.

 

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On Balance: C-Bridge: Making CGE Compatible with CBA

How much impact is your economic appraisal leaving out?” This is the perennial question that CBA practitioners face when putting forward their results of, normally, a poorly performing project. In investment appraisal, my area of work, the question is often decisive. I presume the same applies to CBA practice in policy appraisal.

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On Balance: Value: Is the Benefit Worth the Cost?


AS A YOUNG CLINICIAN, I was interested in making a difference; it did not matter how much of a difference, as long as I could claim some patient benefit. And I really didn’t care what benefit: better survival, less local recurrence, shorter hospital stays, fewer narcotics—the specifics did not matter. With retrospective observational studies, it was easy to claim a benefit when I was demonstrating a potential or probable association. I intervened, and the patient improved! If I could prove that claim and make it look scientific with a randomized controlled trial, was I then done?

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On Balance: Review of Investing in Science by Massimo Florio

Outer space probes, radio telescopes, large particle accelerators, genomic platforms, and similar entities are fascinating focal points of intellectual curiosity and discovery.  While we marvel at what we learn from them, we can be taken aback by their costs.  The $150 billion cost for the International Space Station has been shared by taxpayers in the United States, Europe, Russia, Japan, and Canada.  The Large Hadron Collider near Geneva, Switzerland that enabled the 2012 discovery of the elusive Higgs Boson is estimated to cost about 13.5 billion Euros over the 1993-2025 period for taxpayers in the participating countries.  According to a recent article in The Economist, proposals are being made to build new infrastructures: A Future Circular Collider in Switzerland, an International Linear Collider in Japan, and a Circular Electron-Position Collider in China. Such are the topic of Massimo Florio’s book, Investing in Science: Social Cost-Benefit Analysis of Research Infrastructures.  In it, he demonstrates that benefit-cost analysis (BCA) can be useful in answering the question:  Are these costly research infrastructures worth it?  He draws upon his substantial experience to adapt the traditional framework to the specific characteristics of research infrastructure (RI).  He identifies elements common to RIs, describes how they can be measured and valued, and gives examples from work that he and others have done. This pioneering book fills a gap in that such large-scale investments in science only infrequently have been evaluated using BCA.

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On Balance: Monetizing Bowser

Sometimes conferences actually do stimulate research that otherwise might not be done. Six years ago, I was enjoying a breakfast conversation at the SBCA annual research conference with our immediate past president, Clark Nardinelli. At that time, he was overseeing the Regulatory Impact Analysis (RIA) of Federal Drug Administration (FDA) rules implementing the Food Safety Modernization Act, which included provisions to reduce the risks posed to people and pets from adulterated pet food. He complained that, unlike the case of human mortality risks, he had no sound basis for monetizing changes in mortality risks for dogs and other pets. As dogs do not freely make tradeoffs between risks and wages in labor markets, I suggested that finding a value of statistical dog life would likely require a contingent valuation study. Would his unit provide the approximately $50 thousand dollars needed to do the contingent valuation survey? Unfortunately, he had nothing but praise for the suggestion.

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On Balance: A Note from the Outgoing Editor

So, you've done this great research, had this novel idea, attended a phenomenal event, or read a paradigm-shifting book, and you want to enlighten everyone in the benefit-cost analysis community. Yes, we absolutely want your blog at the Society for Benefit-Cost Analysis.

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On Balance: Benefit Cost Analysis and the Statutory Mandate

This post describes a new article forthcoming in the Journal of Benefic Cost Analysis, “When Benefit-Cost Analysis Becomes Optional: Regulatory Analysis at the Consumer Product Safety Commission in the CPSIA Era.” The article describes a familiar scenario for practitioners of regulatory benefit cost analysis: a high impact event followed by swift and forceful congressional action. In the Consumer Product Safety Commission (CPSC) case, the high impact event was a series of product recalls involving toys contaminated with lead. Congress’s response was to pass the Consumer Product Safety Improvement Act (CPSIA) and require several rulemakings.

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On Balance: Evaluating Security Projects Using Benefit-Cost, Risk, and Decision Analysis

Applying benefit-cost analysis to homeland security regulations and related applications is difficult, in part due to issues in measuring security or risk avoided (Roberts, 2019; Farrow and Shapiro, 2009). The Office of University Programs within the Department of Homeland Security (DHS) asked our team of benefit-cost, decision, and risk analysts to evaluate changes in their security practices based on DHS funded research and development (R&D) projects over the last 15 years. Initial results have been published in von Winterfeldt, et al. (2019) with additional submissions planned for peer reviewed journals. 

 

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