In 2023, the U.S. Office of Management and Budget (OMB) issued guidance documents that specified new procedures for assessing prospective government regulations (Circular A-4) and economic policies more generally (Circular A-94). These revisions to long-standing guidance were not minor updates but shifted policy analyses from an efficiency-oriented perspective to a redistributive approach. OMB broadened the guidelines for reporting distributional consequences of policies and also specified how policy impacts on different income groups should be weighted. The weights assume that the social welfare function is governed by the sum of identical individual utility functions, each of which exhibits a substantial rate of diminishing marginal utility of income. The resulting weights provide a premium for households below the median-income level and a considerable penalty for those at higher-income levels. Application of the weights to property losses creates potentially substantial inefficiencies. If based on current empirical evidence on the income elasticity of the value of a statistical life rather than assuming that there is a complete offset of the weights, application of the weights to mortality risk valuation would generate inequities in protection.

The purpose of this paper is to answer the research question: How may methods of Benefit–Cost Analysis (BCA) influence policy decision-makers? The new research is a continuation of the previous research, and it is updated with new data and new examples. As it is well-known by BCA experts and practitioners, BCA is a relatively simple and widely used technique for deciding whether to make a change. BCA is very important in political and governmental decisions. Governments are policy creators, and Governments are usually formed of politicians. How much do experts inside Governments influence the policymakers? Do politicians allow enough experts to influence policymaking? The research regarding the work of the Croatian Government’s Office for Legislation and its Unit for the system and coordination of the Assessment of the Effects of Regulations (Unit) showed that the analysis of that Unit was not very good in some very important laws. These laws were changed very often because in practice was seen that the application of some laws was not good, and had caused some problems for the citizens, caused legal uncertainty for them, and in some cases had caused a lot of damage.

As its practitioners know well, benefit-cost analysis (BCA) walks a fine line between the positive and normative, between the science of economics and the art of political economy. Missteps threaten to undermine its credibility as a value-free science, while overcaution risks irrelevance to the pressing questions of the day. As BCA adapts to give more weight to distributional concerns, while operating in a more highly charged political environment than ever before, these tensions will only grow. For perspective, I reexamine three prominent episodes in the history of economics where these issues were vigorously debated: (i) The founding of the NBER by Wesley Clair Mitchell, who insisted that the organization eschew all policy recommendations; (ii) the introduction of the modern definition of economics as the study of tradeoffs by Lionel Robbins, who insisted welfare effects could never be aggregated; and (iii) the origins of BCA as a measure of income, which to first-generation practitioners seemed to foreclose the possibility of measuring “intangible” benefits like recreation opportunities, mortality risks, and equity. These episodes, together with critiques of economics from philosophers of science, suggest we are best served by being as transparent as possible about the ways values influence BCA reasoning, without arrogating political decisions into it.

There can be a serious tension between the commitment to cost-benefit analysis and a realistic appreciation of the limits of official knowledge. Without significant efforts to reduce those limits, that analysis might be inadequately informed. Whenever regulators face significant informational deficits, or what is sometimes called “the knowledge problem,” it is important to explore tools that take advantage of what the private sector knows; market-friendly tools, such as economic incentives, have important advantages on that count. An advanced regulatory system should also try to reduce the knowledge problem through three routes: (i) creative use of notice-and-comment rulemaking; (ii) retrospective analysis of regulations and their costs and benefits; and (iii) advance testing, as a way of informing ex ante analysis. For the future, the most promising approach is (iii).

The iron and steel industry generates around 10 % of global greenhouse gas emissions. The bulk of the emissions originates from the iron ore reduction. In this reduction, coal is used as a reagent. Steelmakers could switch to hydrogen-based direct reduction using hydrogen instead of coal as a reagent to reduce iron ore to pig iron. This would eliminate the CO2 emissions from the equivalent process in a traditional blast furnace. However, the process requires massive amounts of electricity. This paper looks at the economics of such a switch to “green steel.” We assess a marginal increase in the production of a hypothetical green steelmaker. We also undertake an investment appraisal of a green plant, based on an ongoing installation in Northern Sweden, but also briefly consider a possible/planned investment in the US. This appraisal is complemented by computing the survival function for the net present value in a systematic sensitivity analysis. It seems highly unlikely that a green steel plant can be socially profitable. If the green plant displaces conventional steel produced within the European Union’s cap-and-trade system for greenhouse gases, total emissions remain more or less unaffected; permits and emissions are simply reshuffled. Hence, if end-users of green steel pay a premium, they might pay for an illusion.

This article conducts a benefit-cost analysis of a child allowance. Through a systematic literature review of the highest quality evidence on the causal effects of cash and near-cash transfers, this article produces core estimates on the benefits and costs per child and per adult of increasing household income by $1000, which can be used for any cash or near-cash program that increases household income. We then apply these estimates to three child allowance proposals, with the main proposal converting the $2000 Child Tax Credit in the federal income tax code into a fully refundable and more generous child allowance of $3600 per child ages 0–5 and $3000 per child ages 6–17, as enacted for 1 year in the American Rescue Plan. Aggregate costs and benefits are estimated via micro-simulation. Our estimates indicate that making the $2000 Child Tax Credit fully refundable and increasing benefits to $3000/$3600 would cost $97 billion per year and generate social benefits of $929 billion per year. Sensitivity analyses indicate that the results are robust to alternative assumptions and that each of the three child allowance proposals produces a very strong to an extraordinarily strong return for the U.S. population.

Under the current practice of benefit-cost analysis, the direct economic benefits produced by a newly built transit facility are assessed based on how it affects travel time and various costs that are associated with transport needs and travel behavior. However, the time-saving-based benefit calculation approach has been questioned and criticized. Given the strong correlation between accessibility and land value, we propose the access-based land value benefit assessment as an alternative, and apply this assessment method to analyzing the Second Avenue Subway project in Manhattan, New York. The primary principle of the access-based method is that the economic value of a transport project’s intangible gains is largely capitalized by nearby properties’ value appreciation, which is directly caused by improved transport accessibility. We find that: (i) the actual travel time saving is lower than originally forecast; (ii) a strong positive correlation between residential property value and job accessibility by transit is observed; (iii) the appreciation in sold property value and rented property value both far exceed total project cost; and (iv) such results support the decision to approve and construct the Second Avenue Subway.

Disruptions in routine immunization caused by COVID-19 put African countries with large vaccine-preventable disease burdens at high risk of outbreaks. Abbas et al. (2020) showed that mortality reduction from resuming immunization outweighs excess mortality from COVID-19 caused by exposure during immunization activities. We leverage these estimates to calculate benefit-cost ratios (BCRs) of disrupted immunization and apply cost of illness (COI) and value of statistical life-year (VSLY) approaches to estimate the cost of excess child deaths from eight vaccine-preventable diseases. BCRs were computed for each country, vaccine, and Expanded Program on Immunization visit. Secondary estimates that include the cost of providing immunization are presented in scenario analysis. Suspended immunization may cost $4949 million due to excess mortality using the COI approach, or $34,344 million using the VSLY approach. Likewise, excess COVID-19 deaths caused by exposure from immunization activities would cost $53 and $275 million using the COI and VSLY approaches, respectively. BCRs of continuing routine immunization are 94:1 using COI and 125:1 using VSLY, indicating that the economic costs of suspending immunization exceed that of COVID-19 deaths risked by routine immunization. When including the costs of providing routine immunization during the COVID-19 pandemic, the BCRs are 38:1 and 97:1 using the COI and VSLY approaches, respectively.

Although a carbon value has often been integrated in the frameworks established to guide public decision-making, benefit-cost analysis (BCA) has played no more than a minor role in the design of climate policies. It is urgently necessary to promote BCA in this area, and there is currently a unique opportunity for doing so. Major countries are designing new packages in order to meet their commitments, as illustrated by the European Green Deal, recent decisions on the part of the Biden Administration, and the creation of a Chinese national carbon market. These constructive processes must be based on BCA. BCA is absolutely necessary in order to achieve net-zero emissions by 2050 at a reasonable cost. Indeed, abatement costs across and within sectors, and across and within countries, are extremely heterogeneous, and many of the policy instruments in use (subsidies, feed-in tariffs, technical standards, etc.) overlap inefficiently. The instrumental debate between carbon pricing and other instruments is sterile if it merely remains at the level of stating principles. BCA can help on this point too, by specifying comparisons between alternatives, identifying complementarities, and selecting the most relevant combinations of instruments. Its scope should therefore range from setting benchmarks for carbon pricing to assessing, e.g., green investments or measures to enhance carbon sinks. When applied to decarbonization policies, BCA requires firstly the selection of a carbon value, in order to monetize the climate benefits of investments and policies. However, the whole assessment framework must be updated, including the time horizon, the discount rate, the cobenefits of climate mitigation actions, and the pricing of climate risks. We show that such an updated framework leads to an upward revision in the assessment of the climate benefits of mitigation actions, and that combining the valuation of damages and cost-effectiveness approaches is necessary in order to meet the needs of policy assessment. Finally, there is a need to extend analysis beyond the efficiency criterion in order to deal with other dimensions of climate policies, particularly their distributive impacts. This requires specific analyses, which should be articulated with BCA and carried out at an early stage for a better implementation of climate policies than we have seen to date.

The design of new hospital inpatient rooms is moving towards private (single occupancy) rooms. These rooms are generally preferred by patients and they may improve patient care, but they are more expensive to build and to staff than semi-private rooms. The question of their societal worth is important because hospitals are expensive, long-term investments and, once built, are prohibitively expensive to change. This paper presents a benefit-cost analysis of private rooms versus semi-private rooms in a proposed new hospital. We estimate that the net social benefit of a bed in a private room is about $70,000 more than a bed in a semi-private room.

The income elasticity of the value per statistical life (VSL) is an important parameter for policy analysis. Mortality risk reductions often dominate the quantified benefits of environmental and other policies, and estimates of their value are frequently transferred across countries with significantly different income levels. U.S. regulatory agencies typically assume that a 1.0 percent change in real income over time will lead to a 0.4 to 0.6 percent change in the VSL. While elasticities within this range are supported by substantial research, they appear nonsensical if applied to populations with significantly smaller incomes. When transferring values between high and lower income countries, analysts often instead assume an elasticity of 1.0, but the resulting VSL estimates appear large in comparison to income. Elasticities greater than 1.0 are supported by research on the relationship between long-term economic growth and the VSL, by cross-country comparisons, and by new research that estimates the VSL by income quantile. Caution is needed when applying these higher elasticities, however, because the resulting VSLs appear smaller than expected future earnings or consumption in some cases, contrary to theory. In addition to indicating the need for more research, this comparison suggests that, in the interim, VSL estimates should be bounded below by estimates of future income or consumption.

This paper deals with public investment in High-Speed Rail (HSR) infrastructure and tries to understand the economic rationale for allocating public money to the construction of new HSR lines. The examination of data on costs and demand shows that the case for investing in HSR requires several conditions to be met: an ex ante high volume of traffic in the corridor where the new lines are built, significant time savings, high average willingness of potential users to pay, the release of capacity in the conventional rail network and airports. On the contrary, net environmental benefits seem to be insignificant in influencing the social desirability of HSR investment. This paper discusses, within a cost-benefit analysis framework, under which conditions the expected benefits could justify the investment in HSR projects.

Benefit-cost analysis (BCA) is typically defined as an implementation of the potential Pareto criterion, which requires inclusion of any impact for which individuals have willingness to pay (WTP). This definition is incompatible with the exclusion of impacts such as rights and distributional concerns, for which individuals do have WTP. I propose a new definition: BCA should include only impacts for which consumer sovereignty should govern. This is because WTP implicitly preserves consumer sovereignty, and is thus only appropriate for ‘sovereignty-warranting’ impacts. I compare the high cost of including non-sovereignty-warranting impacts to the relatively low cost of excluding sovereignty-warranting impacts.