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What’s in, what’s out? Towards a rigorous definition of the boundaries of benefit-cost analysis

Published online by Cambridge University Press:  24 February 2021

Daniel Acland
Affiliation:
Goldman School of Public Policy, University of California Berkeley, 2607 Hearst Ave, Berkeley, CA 94720, USA Email: acland@berkeley.edu
Corresponding
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Abstract

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.

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© The Author(s), 2021. Published by Cambridge University Press

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What’s in, what’s out? Towards a rigorous definition of the boundaries of benefit-cost analysis
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