Cost–benefit analysis: New foundations on shifting sand

New Foundations of Cost–Benefit Analysis, by Matthew Adler and Eric Posner, represents the most ambitious and credible effort to date to build a solid theoretical defense of the use of cost–benefit analysis (CBA) in evaluating government regulation. In this review, three cost–benefit “skeptics” offer their reactions to this ambitious and important book. We note its virtues – its humility, its scrupulousness, its open‐mindedness. We also explore its vices. If preferences are to be “laundered,” is it intellectually defensible to remove the bad but not consider adding the good? Does Adler's and Posner's welfarism really play the limited role they suppose, or does it risk “crowding out” other important deontological and distributional values? If CBA is merely a decision procedure that provides an imperfect proxy of welfare – the moral criterion we really care about – how do we know that the proxy it provides in practice will actually be accurate enough to be useful? Isn't this at bottom an empirical question that cannot be answered by this thoroughly theoretical book? If CBA is no more than an imperfect proxy for welfare, then alternative imperfect decision procedures may perform better in the real world.     

The Cost‐Effectiveness of Welfare‐to‐Work Programs: A Meta‐Analysis

This article uses the tools of meta‐analysis to assess cost–benefit studies of 50 mandatory welfare‐to‐work programs that were targeted at Aid for Families with Dependent Children recipients and evaluated by random assignment. The findings suggest that the costs of a typical evaluated welfare‐to‐work program probably exceeded its benefits from the perspective of the government, but those assigned to the program, and possibly society as a whole, may reap small positive net benefits. However, there are individual programs that are very cost‐beneficial. Further analyses of the determinants of the cost‐benefits of welfare‐to‐work programs to government and society as a whole show that some services are cost‐neutral, but others entail net costs, which are sometimes substantial. The findings suggest that less successful programs might be made more cost‐beneficial by dropping vocational training and basic education as program components, leaving mainly lower cost components, such as mandated job search and sanctions, but also possibly the more costly financial incentives.     

Using the Kaldor‐Hicks tableau format for cost‐benefit analysis and policy evaluation

This note describes the Kaldor‐Hicks (KH) tableau format as a framework for distributional accounting in cost‐benefit analysis and policy evaluation. The KH tableau format can serve as a heuristic aid for teaching microeconomics‐based policy analysis, and offer insight to policy analysts and decisionmakers beyond conventional efficiency analysis. © 2005 by the Association for Public Policy Analysis and Management     

Financing Homeland Security and Emergency Preparedness: Use of Interlocal Cost‐Sharing

Before this study, much of the research on interlocal collaboration has focused broadly on interlocal service agreements, of which interlocal cost‐sharing is but one dimension. This study is one of the first to examine the nature of interlocal cost‐sharing agreements for a specific (and critically important) functional area. A mail survey of Florida city and county finance officers finds that the most common interlocal cost‐sharing partnership is between local general purpose governments rather than with local special purpose governments. The strongest incentives for interlocal cost‐sharing are (1) inadequate funding for emergency management in a jurisdiction's capital budget, (2) the perceived inadequacy of federal and/or state homeland security funding, and (3) greater faith in horizontal (local‐to‐local) than vertical (federal‐state‐local) intergovernmental agreements. The research also highlights the importance of asking fiscal condition survey questions in a more functionally specific manner rather than as an “overall fiscal condition” question.     

Net loss: A cost‐benefit analysis of the Canadian Pacific salmon fishery

This article applies cost‐benefit analysis to the Canadian Pacific commercial salmon fishery. It demonstrates that government policies to preserve the fishery have resulted in higher net social costs than would have resulted from a "do nothing" policy, notwithstanding the rent dissipation associated with unconstrained resource exploitation. The value of landings and the private costs of the harvest over a cycle (1988‐1994) are calculated. On average, fishers extracted rents of C$34.7 million (in constant 1995 Canadian dollars) annually. The public costs of enhancing the resource and organizing and policing the harvest are estimated. When these costs are included in the calculation, net benefits drop to an average of negative C$55.6 million annually. This translates into a net present value (NPV) of the salmon fishery of negative C$784. The effects on NPV of both modest policy changes implemented in 1996‐1997 and of a more dramatic but credible fleet rationalization program are provided. The results indicate that further policy change is called for. More generally, the study shows that policy reform that would significantly benefit both the private sector (through reduced rent dissipation) and the public sector (through reduced government expenditures) can be surprisingly difficult. © 2000 by the Association for Public Policy Analysis and Management.     

Municipal Rebate Programs for Environmental Retrofits: An Evaluation of Additionality and Cost‐Effectiveness

When policies incentivize voluntary activities that also take place in the absence of the incentive, it is critical to identify the additionality of the policy—that is, the degree to which the policy results in actions that would not have occurred otherwise. Rebate programs have become a common conservation policy tool for local municipalities seeking to retrofit residential properties with efficient appliances. This research evaluates whether such rebates can be cost‐effective means for water utilities to promote water conservation. A unique database is developed that combines water‐use data over a three‐year period for all households that participated in a utility's high‐efficiency toilet (HET) rebate program, water‐use data for a matched sample of neighbors who did not receive a rebate, and a survey of rebate participants. Difference‐in‐differences models indicate that installation of an HET reduces household water consumption by approximately 7 percent. While installation of an HET appears to be an effective means for achieving household reductions in water consumption, our results also suggest that the rebate program is a much less effective means for achieving household reductions in water consumption. Specifically, the rebate program is found to provide limited additional water savings beyond what would have occurred naturally and is responsible for only 37 percent of the total water reduction attributable to the installation of HETs over the study period. © 2013 by the Association for Public Policy Analysis and Management.     

New foundations of cost–benefit analysis

This article responds to the criticisms of New Foundations of Cost–Benefit Analysis that appeared in a review by Amy Sinden, Douglas A. Kysar, and David M. Driesen. We argue that their criticisms are either based on misunderstandings of our approach or are too demanding, in the sense that no reasonable decision procedure would satisfy them. We illustrate this second argument by demonstrating that their preferred approach – feasibility analysis – has little to recommend it.     

Comment: Does benefit cost analysis stand alone? rights and standing

The issue of standing in benefit cost analysis is not different from the issue of rights. Benefit cost analysis contributes to legal analysis and also rests upon legal analysis. Debates about standing issues can be reinterpreted as questions of the role of benefit cost analysis when rights are uncertain at the margin. This perspective illumines such questions as whether gains to the criminal count and what weight should be given to expert opinion, to irrational fears, and to gains or losses by foreigners. This perspective is also consistent with a rights-based interpretation of 1) the willingness-to-pay approach, 2) an approach that considers distributional consequences, and 3) an approach that ignores distributional consequences when the costs of determining them are likely to be greater than the benefits.     

Cost benefit analysis and the art of motorcycle maintenance

Partially as the result of consumer and environmentalist pressure, proposals for large-scale government and private projects are increasingly coming under the scrutiny of cost-benefit analysis, decision analysis, risk assessment and related approaches. This paper presents a critical overview of such analyses. It discusses (a) their rationale; (b) their acceptability as guides to decision making; (c) the problems such analyses encounter; (d) how they may be misused; and (e) what steps are needed to increase their contribution to society. The discussion is illustrated with a variety of examples, drawn, in particular, from the evaluation of new technologies.Whatever their flaws, such analyses appear to have a critical role in guiding social decision making. It is important, however, for both the analyst and the nonexpert consumer of such analyses to understand the errors to which they are prone in order to maintain a critical perspective. Indeed, the institutionalization of such criticism is essential.Additional research is needed to clarify psychological (subjective) aspects of the analytic process in order to (a) reduce the errors and omissions made by analysts and (b) help policy makers and the public understand the results and the assumptions under which they were reached.This research was supported by the University of California, Los Angeles, Subcontract No. KS59081-0 to Oregon Research Institute.This paper was stimulated by my participation in Risk Benefit Methodology and Application, a conference held September 21–26, 1975, in Pacific Grove, California, and chaired by Dr. D. Okrent. Many of the ideas expressed could be attributed either directly or indirectly to a variety of conference participants. I would like to particularly thank Philip Bereano, Joseph Coates, Barbara Combs, Ward Edwards, Lewis Goldberg, Paul Hoffman, Jack Hirshleifer, Robert Kates, Sarah Lichtenstein, Joanne Linnerooth, David Okrent, Leon Rappoport, Peggy Roecker and Paul Slovic for help in stimulating and clarifying my thinking. The title is borrowed in part fromZen and the Art of Motorcycle Maintenance by Robert Pirsig (New York: Bantam, 1974) where some related lines of thought are developed.     

Cost‐Effectiveness of Early Childhood Interventions to Enhance Preschool: Evidence from a Randomized Experiment in Head Start Centers Enrolling Historically Underserved Populations

We evaluate the cost‐effectiveness of two early childhood interventions that use instructional coaching and parent coaching as levers for improvement. The study design allows us to compare the individual effects of each intervention as well as their combined effect on student outcomes. We find that teachers receiving instructional coaching improve their use of evidence‐based instructional practices, while families receiving parent coaching show increases in numerous responsive parenting behaviors associated with positive child outcomes. Both interventions demonstrate positive impacts on students, but only parent coaching shows statistically significant effects across a range of student outcomes. Instructional coaching alone is substantially less costly and may therefore be the most cost‐effective of the three treatment conditions; however, small sample sizes limit our ability to reach definitive conclusions. Policy simulations suggest that implementing these interventions could raise the overall cost‐effectiveness of Head Start by at least 16 percent.     

Gender,political participation and electoral systems: A cross‐national analysis

This article investigates whether the smaller gender gaps in political engagement, found in more proportional electoral systems, translate into smaller gender differences in political participation. Using data from the Comparative Study of Electoral Systems, it presents the argument that more proportional systems may send signals that multiple interests are included in the policy‐making process, which may increase women's levels of political participation and thereby reduce gender gaps. Additionally, the article tests for the possibility that a greater number of political parties and the elected representatives they provide act as barriers to political participation that have a greater impact on women's levels of participation than men's. It is argued that women's lower levels of political resources and engagement might create more difficult barriers for them than for men. Results lend little support for the first hypothesis, but a greater confirmation for the second.     

Impact of patent rights on innovation: A meta‐analysis

Research shows that the enforcement of patent rights (PRs) play a significant role in countries' innovation and technological development. The existing narrative reviews find that the impact of PRs on innovation is not clear across countries. Therefore, this study examines the impact of patent rights protection on innovation across countries by conducting a meta‐analysis from 14 empirical studies that contain 145 estimates, undertaken during 1996–2019. This study intends to test whether the findings are sensitive to various measures employed and identify possible policy implications across countries. Our analysis suggests that certain aspects of measuring innovation are crucial in explaining the significance of these findings. This study finds that countries' strength in PRs plays a significant role in determining its innovation. We also find that there is a distinction in PRs' contribution to domestic innovation across developed and developing countries in the existing primary studies.     

De facto independence after delegation: A fuzzy‐set analysis

The phenomenon of delegating public authority from elected politicians (or ministries headed by elected politicians) to formally independent regulatory agencies (RAs) is becoming increasingly widespread. This paper examines the relation between formal independence, as prescribed in the constitutions of agencies, and de facto independence. Toward this end, it conceptualizes and assesses de facto independence of RAs, and discusses organizational, institutional, and political explanations for divergence from formal independence. The complex relations between de facto and formal independence are examined with a cross‐national, cross‐sectoral comparison of 16 Western European RAs using fuzzy‐set analysis. The results show that formal independence is neither a necessary nor a sufficient condition for explaining variations in the de facto independence of agencies. Other factors, such as the lifecycle of agencies, veto players, and European networks of agencies, have a decisive impact.     

Correlates of rigorous and credible transnational governance: A cross‐sectoral analysis of best practice compliance in eco‐labeling

The number of eco‐labeling schemes is rising dramatically, yet the rigor and credibility of such schemes remains uneven. Whereas some eco‐labeling organizations (ELOs) comply with best practice guidelines designed to increase the credibility of their standards through attention to good operating principles, such as transparency and impartiality, others do not. Within this article, I attempt to explain this variation through multivariate regression analysis of an original cross‐sectoral dataset of transnational ELO policies and practices. I find compelling evidence to suggest that ELOs with environmental non‐governmental organization (ENGO) partners, nonprofit structures, or broad transnational reach are most likely to comply with best practices. I also find that private ELOs are more likely to disregard best practices than public ones. Conversely, I find little evidence that levels of industry funding or sector‐specific competition dynamics affect best practice compliance. This study contributes new data, a new method of comparison, and new findings to the growing literature on transnational governance.     

Early‐Life Origins of Life‐Cycle Well‐Being: Research and Policy Implications

Mounting evidence across different disciplines suggests that early‐life conditions can have consequences on individual outcomes throughout the life cycle. Relative to other developed countries, the United States fares poorly on standard indicators of early‐life health, and this disadvantage may have profound consequences not only for population well‐being, but also for economic growth and competitiveness in a global economy. In this paper, we first discuss the research on the strength of the link between early‐life health and adult outcomes, and then provide an evidence‐based review of the effectiveness of existing U.S. policies targeting the early‐life environment. We conclude that there is a robust and economically meaningful relationship between early‐life conditions and well‐being throughout the life cycle, as measured by adult health, educational attainment, labor market attachment, and other indicators of socioeconomic status. However, there is some variation in the degree to which current policies in the United States are effective in improving early‐life conditions. Among existing programs, some of the most effective are the Special Supplemental Program for Women, Infants, and Children (WIC), home visiting with nurse practitioners, and high‐quality, center‐based early‐childhood care and education. In contrast, the evidence on other policies such as prenatal care and family leave is more mixed and limited.     

Civil War and Social Cohesion: Lab‐in‐the‐Field Evidence from Nepal

We study effects of wartime violence on social cohesion in the context of Nepal's 10‐year civil war. We begin with the observation that violence increased levels of collective action like voting and community organization—a finding consistent with other recent studies of postconflict societies. We use lab‐in‐the‐field techniques to tease apart such effects. Our causal‐identification strategy exploits communities' exogenous isolation from the unpredictable path of insurgency combined with matching. We find that violence‐affected communities exhibit higher levels of prosocial motivation, measured by altruistic giving, public good contributions, investment in trust‐based transactions, and willingness to reciprocate trust‐based investments. We find evidence to support two social transformation mechanisms: (1) a purging mechanism by which less social persons disproportionately flee communities plagued by war and (2) a collective coping mechanism by which individuals who have few options to flee band together to cope with threats.     

Taking enforcement on its own terms: EPA's heavy‐duty diesel engine litigation

The authors of Regulation by Litigation characterize the US Environmental Protection Agency (EPA)'s enforcement action against diesel engine manufacturers as an effort to achieve by litigation what the Agency was unable to achieve by regulation: immediate reductions in emissions of nitrogen oxides. By substituting litigation for rulemaking, the authors of the book argue, the Agency avoided political and judicial accountability and put itself on a suboptimal policy track. This comment argues that the diesel engine litigation may be better understood as what it purported to be, an enforcement action, not rulemaking in disguise. The authors' characterization of the litigation is questionable on at least two grounds. First, it fails to fully appreciate the distinct functions of enforcement and policymaking in a regulatory setting. The goal of enforcement is not primarily to make policy, but to enforce it – to punish violators, deter future violations, and mitigate harms caused by violations. That goal supplies the proper measure of the litigation's success. Second, in applying public choice analysis to create a story of agency circumvention of appropriate rulemaking procedures, the authors' account misses key features of how agency enforcement decisions are made – and were made in this litigation. This latter shortcoming raises broader questions about the difficulties of applying public choice analysis in complex institutional settings.