Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Journal of Benefit-Cost Analysis

More options …

Behavioral Economics and the Conduct of Benefit-Cost Analysis: Towards Principles and Standards

Lisa A Robinson / James K. Hammitt
Published Online: 2011-04-25 | DOI: https://doi.org/10.2202/2152-2812.1059

As traditionally conducted, benefit-cost analysis is rooted in neoclassical welfare economics, which, in its most simplified form, assumes that individuals act rationally and are primarily motivated by self-interest, making decisions that maximize their welfare. Its conduct is evolving to reflect recent work in behavioral economics, which explores the psychological aspects of decisionmaking. We consider several implications for analyses of social programs, focusing largely on economic valuation. First, benefit-cost analysis often involves valuing nonmarket outcomes such as reductions in health and environmental risks. Behavioral research emphasizes the need to recognize that these values are affected by psychological as well as physical attributes. Second, benefit-cost analysis traditionally uses exponential discounting to reflect time preferences, while behavioral research suggests that individuals’ discounting may be hyperbolic. While the appropriate rates and functional form are uncertain, market rates best represent the opportunity costs associated with diverting funds to support a particular social policy or program. Such rates reflect the intersection between technological progress and individual preferences, regardless of whether these preferences fit the standard economic model or a behavioral alternative. Third, behavioral research emphasizes the need to consider the influence of other-regarding preferences on valuation. In addition to acting altruistically, individuals may act reciprocally to reward or punish others, or use the status of others as the baseline against which to assess their own well-being. Fourth, behavioral economics identifies factors that can help researchers develop valuation studies that provide well-informed, thoughtful preferences. Finally, while behavioral research has led some to argue for a more paternalistic approach to policy analysis, an alternative is to continue to focus on describing the preferences of those affected by the policy options while working to ensure that these preferences are based on knowledge and careful reflection. Benefit-cost analysis can be best viewed as a pragmatic framework for collecting, organizing, and evaluating relevant information.

Keywords: behavioral economics; benefit-cost analysis; nonmarket valuation; discounting; social preferences

About the article

Published Online: 2011-04-25

Citation Information: Journal of Benefit-Cost Analysis, Volume 2, Issue 2, ISSN (Online) 2152-2812, DOI: https://doi.org/10.2202/2152-2812.1059.

Export Citation

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston.Get Permission

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

Heather Klemick, Elizabeth Kopits, and Ann Wolverton
Journal of Benefit-Cost Analysis, 2017, Volume 8, Number 01, Page 115
Rikke Søgaard, Jes Lindholt, and Dorte Gyrd-Hansen
Applied Health Economics and Health Policy, 2012, Volume 10, Number 6, Page 397
Lisa A. Robinson
Journal of Benefit-Cost Analysis, 2016, Volume 7, Number 01, Page 1
Carol Graham
Journal of Benefit-Cost Analysis, 2016, Volume 7, Number 01, Page 121
Jason F. Shogren and Linda Thunström
Journal of Benefit-Cost Analysis, 2016, Volume 7, Number 01, Page 92
Peter Calow
Integrated Environmental Assessment and Management, 2015, Volume 11, Number 2, Page 331
Matthew D. Adler
Journal of Benefit-Cost Analysis, 2016, Volume 7, Number 01, Page 196
José Antonio Robles-Zurita
Accident Analysis & Prevention, 2015, Volume 79, Page 70
Katerina A Christopoulos, Elise D Riley, Jacqueline Tulsky, Adam W Carrico, Judith T Moskowitz, Leslie Wilson, Lara S Coffin, Veesta Falahati, Jordan Akerley, and Joan F Hilton
BMC Infectious Diseases, 2014, Volume 14, Number 1
W. Kip Viscusi and Ted Gayer
Journal of Benefit-Cost Analysis, 2016, Volume 7, Number 01, Page 69
Lawrence Jin, Don Kenkel, Feng Liu, and Hua Wang
Journal of Benefit-Cost Analysis, 2015, Volume 6, Number 01, Page 154
Gloria Helfand and Reid Dorsey-Palmateer
Journal of Benefit-Cost Analysis, 2015, Volume 6, Number 02, Page 432
Bruno Karoubi and Régis Chenavaz
Applied Economics, 2015, Volume 47, Number 38, Page 4102
Dorte Gyrd-Hansen, Mette Lundsby Jensen, and Trine Kjaer
Health Economics, 2014, Volume 23, Number 5, Page 550

Comments (0)

Please log in or register to comment.
Log in