Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-10T07:57:28.710Z Has data issue: false hasContentIssue false
  • English
  • Français

The Consent Justification for Benefit–Cost Analysis

Published online by Cambridge University Press:  06 July 2020

Richard O. Zerbe
Richard O. Zerbe*
Affiliation:
Public Policy and Governance, University of Washington, 939, 21st Ave East, Seattle, WA 98112, USA, e-mail: richardozerbe@gmail.com
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper provides a Consent Justification for benefit–cost analysis (BCA). The Consent Justification is based on a tendency toward actual compensation. A substantial justification for using BCA as a tool is the actual Pareto test, called the Consent Justification, in combination with the net present value criterion for individual projects. The traditional justification, the potential compensation test (PCT), is unsatisfactory on several grounds. In addition, the PCT occupies the uneasy position of being the source of extended criticisms in the economic literature and especially in the legal and philosophy literature. The argument for the Consent Justification lies not only in the deficiencies of the PCT, but also, especially, in a showing through simulation that all tend to gain across a portfolio of projects which is not large but rather robust with respect to errors and assumptions.

Keywords

Kaldor–Hicks criterionnet present valueParetopotential compensation testScitovsky reversalssimulation.A11D30D60D63H43.
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 11 , Issue 2 , Summer 2020 , pp. 319 - 340
Copyright
© Society for Benefit-Cost Analysis, 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ackerman, F., and Heinzerling, L. 2002. “Pricing the Priceless: Cost–Benefit Analysis of Environmental Protection.” University of Pennsylvania Law Review, 150 (5–6): 1553.CrossRefGoogle Scholar
Ackerman, F., and Heinzerling, L. 2005. Priceless: On Knowing the Price of Everything and The Value of Nothing. New York: The New Press.Google Scholar
Adler, M. D., and E. A, Posner. 1999. “Rethinkng Cost–Benefit Analysis.” The Yale Law Journal, 109 (2): 165–247.CrossRefGoogle Scholar
Anderson, E. 1993. Value in Ethics and Economics. Cambridge, MA: Harvard University Press.Google Scholar
Arrow, K. J., and Lind, R. C. 1970. “Uncertainty and the Evaluation of Public Investment Decisions.” The American Economic Review, 60: 364–378.Google Scholar
Baker, E. C. 1979. “Starting Points in The Economic Analysis of Law.” Hofstra Law Review, 8: 939.Google Scholar
Boadway, R., Bruce, N. 1984. Welfare Economics. New York: Basil Blackwell.Google Scholar
Carlin, A. 2005. “The New Challenge to Cost-Benefit Analysis.” Regulation, 18: 18.Google Scholar
Chipman, J. S., and J. C, Moore. 1978. “The New Welfare Economics.” International Economic Review, 19: 547–584.CrossRefGoogle Scholar
Coleman, J. L. 1988. “Efficiency, Utility and Wealth Maximization.” Markets, Morals and the Law, 95: 95–132.Google Scholar
Foldes, L. P., and R, Rees. 1977. “A Note on the Arrow-Lind Theorem.” American Economic Review, 67 (2): 188–193.Google Scholar
Frank, R. 2000. “Why Is Cost-Benefit Analysis So Controversial?” Journal of Legal Studies, 29 (2).Google Scholar
Goulder, L. H. 2007. “Benefit–Cost Analysis, Individual Differences, and Third Parties. ” Research in Law and Economics, 23: 67.CrossRefGoogle Scholar
Hicks, J. 1939. “The Foundations of Welfare Economics.” The Economic Journal, 49 (196): 696–712CrossRefGoogle Scholar
Heinzerling, L. 1998. “Regulatory Costs of Mythic Proportions.” The Yale Law Journal, 107: 1981.CrossRefGoogle Scholar
Heinzerling, L. 2002. “Markets for Arsenic.” The Georgetown Law Journal, 90: 2311.Google Scholar
Kaldor, N. 1939. “Welfare Propositions of Economics and Interpersonal Comparisons of Utility.” The Economic Journal, 49: 549–552.CrossRefGoogle Scholar
Kelman, S. 1981. “Cost-Benefit Analysis: An Ethical Critique. Regulation, Jan.–Feb. 1981, At 33 (1981) In James V. Delong et al., Defending Cost-Benefit Analysis: Replies To Steven Kelman.” Regulation, 39.Google Scholar
Knetsch, J. L. 1989. “The Endowment Effect and Evidence of Nonreversible Indifference Curves.” American Economic Review, 79: 1277–1284.Google Scholar
Li, Jie, Boghosian, B.M., Li, C. 2019. “The Affine Wealth Model: An agent-based model of asset exchange that allows for negative-wealth agents and its empirical validation.” Physica A: Statistical Mechanics and its Applications, 516: 423–442.CrossRefGoogle Scholar
Markovits, R. S. 1993. “A Constructive Critique of the Traditional Definition and Use of the Concept of “the Effect of a Choice on Allocative (Economic) Efficiency”: Why the Kaldor–Hicks Test, the Coase Theorem, and Virtually All Law-and-Economics Welfare Arguments are Wrong.” Universityy of Illinois Law Review, 485: 512–515.Google Scholar
McConnell, K. E. 1997. “Does Altruism Undermine Existence Value?” Journal of Environmental Economics and Management, 32: 22–37.CrossRefGoogle Scholar
Quiggin, J. 1997. “Altruism and Benefit-Cost Analysis.” Australian Economic Papers, 36: 144–155.CrossRefGoogle Scholar
Rawls, J. 1971. A Theory of Justice. Cambridge, MA: Harvard University Press.Google Scholar
Just, R., A., Schmitz, and R, Zerbe. 2013. “Scitovsky Reversals With Normal Goods.” Journal of Benefit–Cost Analysis, 4(3): 411–413.CrossRefGoogle Scholar
Richardson, H. S. 2000. “The Stupidity of the Cost–Benefit Standard.” The Journal of Legal Studies, 29: 971–985.CrossRefGoogle Scholar
Sagoff, M. 1988. The Economy of the Earth: Philosophy, Law, and the Environment. New York, NY: Cambridge University Press.Google Scholar
Schmitz, A., and Zerbe, R. 2008. “Scitovsky Reversals and Efficiency Criteria in Policy Analysis.” Journal of Agricultural and Food Industrial Organization , 6(2), Article 3.CrossRefGoogle Scholar
Scitovsky, T. 1941. “A Note on Welfare Propositions in Economics.” Review of Economic Studies, 9: 77–88.CrossRefGoogle Scholar
Skubik, D. W. 1980. “Pareto and Kaldor–Hicks Evaluations of Distribution of Social Resources Symposium on Efficiency as a Legal Concern.” Hofstra Law Review, 8: 485.Google Scholar
Zerbe, R. 2020. “The Law and Economics of Cannibalism: Life and Death Rationing.” Working Paper.Google Scholar
Zerbe, R. O Jr. 2007. “The Legal Foundations of Cost–Benefit Analysis.” Charleston Law Review, 2 (1): 93–184.Google Scholar
Zerbe, R. O. 2004. “Should Moral Sentiments be Incorporated into Benefit–Cost Analysis? An Example of Long-Term Discounting.” Policy Sciences, 37 (3/4): 305–318.CrossRefGoogle Scholar
Zerbe, R. O. 2014. Efficiency in Law and Economics. Northampton, MA: Edward Elgar Publishing, Inc.CrossRefGoogle Scholar
Zerbe, R. O., Y, Bauman, and F, Aaron. 2006a. “A Preference for an Aggregate Measure: A Reply to Sagoff.” Ecological Economics, 60 (1): 14–16.CrossRefGoogle Scholar
Zerbe, R. O., Y, Bauman, and A, Finkle. 2006b. “An Aggregate Measure for Benefit-Cost Analysis.” Ecological Economics, 58 (3): 449–461.CrossRefGoogle Scholar
Zerbe, R. O., and Dively, D. D. 1994. Benefit–Cost Analysis in Theory and Practice, 75–84. New York: Harper-Collins.Google Scholar
Zerbe, R. O., and Knott, S. 2004. An Economic Justification for a Price Standard in Merger Policy: The Merger of Superior Propane and ICG Propane. In Antitrust Law And Economics, Research In Law And Economics, Vol. 21, edited by J, Kirkwood, 409–444. Greenwich, CT: Jai Press.CrossRefGoogle Scholar