Most Downloaded Articles
- Appropriate Discounting for Benefit-Cost Analysis by Burgess, David F and Zerbe, Richard O
- Measuring The Social Opportunity Cost of Labor In Mexico by Guillermo-Peon, Sylvia B. and Harberger, Arnold C.
- Benefit-Cost Analysis for Drinking Water Standards: Efficiency, Equity, and Affordability Considerations in Small Communities by Raucher, Robert S./ Rubin, Scott J/ Crawford-Brown, Douglas and Lawson, Megan M.
- The Normative Implications of Political Decision-Making for Benefit-Cost Analysis by Krutilla, Kerry and Alexeev, Alexander
- A Benefit-Cost Analysis of Private and Semi-Private Hospital Rooms by Boardman, Anthony E and Forbes, Diane
Designing Smarter Regulation with Improved Benefit-Cost Analysis
1University of Manchester
Citation Information: Journal of Benefit-Cost Analysis. Volume 1, Issue 1, Pages –, ISSN (Online) 2152-2812, DOI: 10.2202/2152-2812.1000, July 2010
- Published Online:
Benefit-cost analysis is required for many regulatory decisions in the United States and in other countries. In this paper, I examine a standard textbook model that is used in benefit-cost analysis as it is actually applied to environmental policy and other areas of regulation. My primary objective is to suggest how including some key factors in the analysis could promote the development of smarter regulation.I begin by presenting a standard economic model for government intervention in markets, which balances benefits and a narrow definition of costs. I then introduce a richer normative theory that considers several political and economic costs that are frequently not considered in analyzing real-world applications. Examples include costs associated with rent seeking, design and implementation, and raising revenues. The richer theory suggests that the government should supply less of a good, or ask the private sector to provide less of that good, than the standard economic model suggests. The reason is that intervening in markets is often more costly than the standard model assumes. In special cases, the theory provides guidance on the setting of socially optimal taxes and subsidies. I then explore how the theory needs to be modified in the presence of biased estimates of benefits and costs. I conclude with a discussion of how the theoretical framework can be applied to the actual design of regulatory policy.