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Incorporating Distributional Issues into Benefit Cost Analysis: Why, How, and Two Empirical Examples Using Non-market Valuation

Published online by Cambridge University Press:  07 June 2021

John B. Loomis
John B. Loomis*
Affiliation:
Colorado State University - Fort Collins
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Abstract

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This article reviews the rationale for and various approaches used by economists to incorporate distributional consequences of projects or policies into benefit-cost analyses. Approaches reviewed include distributional weights and metrics based on the Lorenz curve. Analysis of distributional issues in partial equilibrium and general equilibrium settings are briefly reviewed. We present an empirical demonstration of how the contingent valuation method (CVM) and hedonic property methods (HPM) can be used to quantify how non-market environmental benefits are distributed by income and ethnicity. Using CVM, the distribution of non-market benefits can be cross-tabbed with respondent demographics, so that a variety of “distributions” of benefits by relevant demographic groups can be calculated. Using the HPM, the analyst can statistically test to see if the implicit price gradient varies with differences in income and ethnicity. In our empirical example, we find that ethnicity and income interaction terms on the implicit price gradient are statistically significant suggesting differential effects of National Forest fire suppression policies on Hispanics and low income households.

Keywords

contingent valuation methoddistributionequityenvironmental justicehedonic property methodLorenz Curve
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 2 , Issue 1 , 03 January 2011 , pp. 1 - 24
Copyright
Copyright © Society for Benefit-Cost Analysis 2011

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