Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-10T12:40:02.417Z Has data issue: false hasContentIssue false
  • English
  • Français

The Normative Implications of Political Decision-Making for Benefit-Cost Analysis

Published online by Cambridge University Press:  19 January 2015

Kerry Krutilla  and
Alexander Alexeev
Kerry Krutilla
Affiliation:
Indiana University, Bloomington
Alexander Alexeev
Affiliation:
Indiana University, Bloomington
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

The Potential Pareto criterion, or Kaldor-Hicks standard, presumes that costs are not fully compensated. Yet, uncompensated costs can incentivize costly political activity and create uncertainty about political outcomes. These consequences are not reckoned in the standard benefit-cost analysis. This study models political costs and uncertainty as a function of project parameters and political-institutional characteristics. The economic consequences of political behavior are then incorporated into an adjusted project evaluation standard. This standard assures that the project’s conventionally measured net benefits are sufficient to cover political costs and uncertainty about the decision-making outcome.

Keywords

benefit cost analysispolitical coststransaction costspolitical economy
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 3 , Issue 2 , 08 May 2012 , pp. 1 - 36
Copyright
Copyright © Society for Benefit-Cost Analysis 2012

References

Amegashie, J. 2006. A contest success function with a tractable noise parameter. Public Choice. 126: 135–144.CrossRefGoogle Scholar
Becker, G. 1983. A theory of competition among pressure groups for political influence. Quarterly Journal of Economics. 98: 371–400.Google Scholar
Blakenship, S. and Yanarella, E.. 2004. Prison recruitment as a policy tool of local economic development: a critical evaluation. Contemporary Justice Review. 7: 183–198.Google Scholar
Bourne, J. 2000. Louisiana’s vanishing wetlands: going, going, … Science. 289: 1860–1863.Google Scholar
Bovenberg, A.L. and Goulder, L.H.. 2001. Neutralizing the adverse industry impacts of CO2 abatement policies: what does it cost? In Carraro, C. and Metcalf, G. (eds.), Behavioral and Distributional Effects of Environmental Policy. Chicago: University of Chicago Press.Google Scholar
Bulkeley, H. and Betsill, M.. 2005. Rethinking sustainable cities: multilevel governance and the ‘urban’ politics of climate change. Environmental Politics. 14: 42–63.CrossRefGoogle Scholar
Burtraw, D. and Palmer, K.. 2008. Compensation rules for climate policy in the electricity sector. Journal of Policy Analysis and Management. 27: 819– 847.Google Scholar
Colby, B. 1990. Transactions costs and efficiency in western water allocation. American Journal of Agricultural Economics. 72: 1184–1192.CrossRefGoogle Scholar
Colby, B. 2000. Cap-and-trade policy challenges: a tale of three markets. Land Economics. 76: 638–658.Google Scholar
Cole, D. and Grossman, P.. 2002. The meaning of property rights: law versus economics? Land Economics. 78: 317–330.Google Scholar
Cooter, R. and Rubinfeld, D.. 1989. Economic analysis of legal disputes and their resolution. Journal of Economics Literature. 27: 1067–1097.Google Scholar
Dahlby, B. 2008. The Marginal Cost of Public Funds: Theory and Applications. Cambridge, MA: MIT Press.Google Scholar
Farrow, S. 1995. The dual political economy of taxes and tradable permits. Economics Letters. 49: 217–220.Google Scholar
Farrow, S. 1999. The duality of taxes and tradable permits: a survey with applications in Central and Eastern Europe. Environment and Development Economics. 4: 519–535.Google Scholar
Fleming, E. 1998. Rent-seeking in rural development projects: its potential causes and measures to reduce its costs. Journal of International Development. 10: 277–299.Google Scholar
Fredriksson, P. 2000. The siting of hazardous waste facilities in federal systems: the political economy of NIMBY. Environmental and Resource Economics. 15: 75–87.Google Scholar
Giuliano, G. 1992. An assessment of the political acceptability of congestion pricing. Transportation. 19: 335–358.CrossRefGoogle Scholar
Gramlich, E. 1994. Infrastructure investment: a review essay. Journal of Economic Literature 32: 1176–1196.Google Scholar
Hamilton, J. and Slutskey, S.. 1990. Endogenous timing in duopoly games: Stackelberg or Cournot equilibria. Games and Economic Behavior. 2: 29–46.Google Scholar
Hartwick, J. and Olewiler, N.. 1986. The Economics of Natural Resource Use. New York: Harper & Row.Google Scholar
Harrington, W., Morgenstern, R., and Sterner, T. (eds.). 2003. Choosing Environmental Policy. Washington, DC: Resources for the Future.Google Scholar
Harrington, W. 2003. Industrial water pollution in the United States; direct regulation or market incentive? In Harrington, W., Morgenstern, R., and Sterner, T. (eds.). Choosing Environmental Policy. Washington, DC: Resources for the Future.Google Scholar
Hirschleifer, J. 1995. Anarchy and its breakdown. Journal of Political Economy. 103: 26–52.Google Scholar
Horan, C. and Jonas, A.. 1998. Governing Massachusetts: uneven development and politics in metropolitan Boston. Economic Geography. 74: 83–95.Google Scholar
Jenkins, G. 1999. Evaluation of stakeholder impacts in cost-benefit analysis. Impact Assessment and Project Appraisal. 17: 87–96.Google Scholar
Kelvin, A. 2000. How stakeholders with various preferences converge on acceptable investment programs. Evaluation and Program Planning. 23: 105–113.CrossRefGoogle Scholar
Krueger, A. 1990. Government failures in development. The Journal of Economics Perspectives. 4: 9–23.Google Scholar
Krutilla, K. 2005. Using the Kaldor-Hicks Tableau format for cost-benefit analysis and policy evaluation. Journal of Policy Analysis and Management. 24: 864–875.Google Scholar
Krutilla, K. and Krause, R.. 2011. Transaction costs and environmental policy: an assessment framework and literature review. International Review of Environmental and Resource Economics. 4: 261–354.Google Scholar
Lindhal, T. and Soderqvist, T.. 2004. Building a catchment-based environmental programme: a stakeholder analysis of wetland creation in Scania, Sweden. Regional Environmental Change Journal. 4: 132–144.Google Scholar
Maxwell, J., Lyon, T., and Hackett, S.. 2000. Self-regulation and social welfare: the political economy of corporate environmentalism. Journal of Law and Economics. 43: 583–617.Google Scholar
Nash, J. 2007. Economic Efficiency versus Public Choice: The Case of Property Rights in Road Traffic Management. Working Paper. Chicago: University of Chicago Law School.Google Scholar
Nitzan, S. 1994. Modeling rent-seeking contests. European Journal of Political Economy. 10: 41–60.Google Scholar
Parry, I.W.H. and Williams, R.C. III. 1999. A second-best evaluation of eight policy instruments to reduce carbon emissions. Resource and Energy Economics. 21: 347–373.Google Scholar
Pezzey, J. 2003. Emission taxes and tradable permits: a comparison of views on long-run efficiency. Environmental and Resource Economics. 26: 329–342.Google Scholar
Purcell, M. 2000. The decline of the political consensus for urban growth: evidence from Los Angeles. Journal of Urban Affairs. 22: 85–100.Google Scholar
Skaperdas, S. 1996. Contest success functions. Economic Theory 7: 283–290.Google Scholar
Sterner, T. and Isaksson, L.H.. 2006. Refunded emission payments theory, distribution of costs, and Swedish experience of NOx abatement. Ecological Economics. 57: 93–106.CrossRefGoogle Scholar
Thompson, D. 1999. Beyond benefit-cost analysis: institutional transaction costs and regulation of water quality. Natural Resources Journal. 39: 517–541.Google Scholar
Tullock, G. 1988. Wealth, Poverty, and Politics. Oxford: Basil Blackwell.Google Scholar
US EPA. 1997. The Benefits and Costs of the Clean Air Act, 1970 to 1990. Washington, DC: US Environmental Protection Agency.Google Scholar