The Costs and Benefits of Cost-Benefit Analysis

Article excerpt

ARGUMENTS over public policies have a way of taking on a life of their own, coming to exist almost without reference to the policies themselves. Before a policy has been adopted, when everything is still up for grabs and the stakes are high, the participants in the debate put forward carefully reasoned arguments meant to convince. There is no room for recondite analysis or pedantry. Once a policy is decided upon, the debate has a tendency to subside, though occasionally it does not, and then not infrequently the arguments have a way of becoming ever more exquisite and divorced from reality. Since the basic positions have already been stated and restated and are familiar to all sides, the debate takes on a stylized character. The debaters play their assigned roles but with a nod and a wink, for they know that the policy under question will continue more or less as before, regardless of the debate's outcome. This can encourage all sorts of elaborate, scholarly commentary, but is also a sign of the inconsequent iality of what is being said.

Such seems to be the case with the now half-century old debate over cost-benefit analysis, the subject of a new volume, titled Cost-Benefit Analysis: Legal, Economic, and Philosophical Perspectives. [+] The editors, Matthew D. Adler and Eric A. Posner, point out in their introduction that although the use of cost-benefit analysis has spread throughout the federal government, academic opinion on this budgetary tool is sharply divided. As one of the contributors to the volume puts it, "Cost-benefit analysis influences, if not controls, many public decisions of great import," but "its justificatory foundations remain at best suspect and at worse in ruins." The present volume, an illuminating and challenging work of scholarship, nicely illustrates this point. The book emerged from a conference held at the University of Chicago Law School that included some of the foremost scholars in the fields of law, philosophy, and economics, including Amartya Sen, Martha C. Nussbaum, Cass R. Sunstein, Gary S. Becker, and Ric hard A. Posner. The brilliance of the authors is not to be doubted. Who would have thought that the subject of cost-benefit analysis could inspire a debate over Sophocles's Antigone or invocations of John Dewey, Aristotle, and Hegel? Or lead to analyses of the nature of human cognition and rational deliberation? Cost-benefit analysis can also, it seems, lead otherwise mild-mannered scholars to become ill-tempered. Sen denounces cost-benefit analysis as "a daydream," while another contributor, Henry S. Richardson, calls it "stupid."

IT'S not immediately clear why cost-benefit analysis should inspire such erudite commentary and impassioned polemics. One might begin by asking what cost-benefit analysis is. At one level, this is a difficult question to answer, as the authors of this volume offer different and at times contradictory definitions. Some believe it is rooted in utilitarian and consequentialist theories, while others deny this to be the case. Meanwhile, other contributors agree with Richard Posner that "we should not worry whether cost-benefit analysis is well grounded in any theory of value. We should ask how well it serves whatever goals we have." Despite this confusion, a clear, basic description of cost-benefit analysis can be found in Lewis A. Kornhauser's contribution.

Cost-benefit analysis refers to a narrower class of procedures that evaluate policies in terms of the net benefits the policies provide to individuals. Benefits are then usually defined solely in terms of the change in individual well-being that the policy induces, and costs are generally measured in terms of the monetary costs of resources required to implement the project. Again, typically, individual well-being is understood as the satisfaction of subjective preferences; in practice these subjective values are inferred from market choices of individuals or are elicited through survey techniques. …