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).

This article examines the economic foundations of three criteria used for evaluating the costs and benefits of social programs. Some criteria do not consider the scale of programs or address the costs associated with programs that expand or contract the total government budget. A recent addition to the list of evaluation criteria – the marginal value of public funds – does not adopt a social optimality perspective. It evaluates the optimality of expenditures assuming a predetermined aggregate budget without considering the social costs of raising that budget.

Three common misconceptions persist about federal regulations. The first misconception is that most new regulations concern the environment, but in fact, only a small minority of regulatory flows are environmental. The second misconception is that regulators offer reasonable justifications and quantitative evidence for the majority of regulations. However, quantitative estimates rarely appear in published rules, negating the impression given by executive orders and Office of Management and Budget guidance, which require cost-benefit analysis (CBA) and clearly articulate sound economic principles for conducting CBA. Environmental rules have relatively higher-quality CBAs, at least by the standards of other federal rules. The third misconception, which is particularly relevant to the historic regulations promulgated during the COVID-19 pandemic, is that regulatory costs are primarily clerical, rather than opportunity or resource costs.

Economists have for decades recommended that carbon dioxide and other greenhouse gases be taxed – or otherwise priced – to provide incentives for their reduction. The USA does not have a federal carbon tax; however, many state and federal programs to reduce carbon emissions effectively price carbon – for example, through cap-and-trade systems or regulations. There are also programs that subsidize reductions in carbon emissions. At the 2022 meetings of the American Economic Association, the Society for Benefit-Cost Analysis brought together five well-known economists – Joe Aldy, Dallas Burtraw, Carolyn Fischer, Meredith Fowlie, and Rob Williams – to discuss how the USA does, in fact, price carbon and how it could price carbon. Maureen Cropper chaired the panel. This paper summarizes their remarks.

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.

The paper investigates the validity of individual perceptions of heart disease risks, and examines how information and risk perceptions affect marginal willingness to pay (MWTP) to reduce risk, using data from a stated preference survey. Results indicate that risk perceptions held before receiving risk information are plausibly related to objective risk factors and reflect individual-specific information not found in aggregate measures of objective risk. After receiving information, individuals’ updates of prior risk assessments are broadly consistent with Bayesian learning. Perceived heart disease risks thus satisfy construct validity and provide a valid basis for inferring MWTP to reduce risk. Consistent estimators of the relationship of MWTP to endogenously perceived risk are developed. Estimating MWTP based on objective rather than subjective risks causes misleading inferences about benefits of risk reduction. An empirical case study shows that estimated benefits may be as much as 60–98 % higher when estimated using individuals’ heterogeneous perceptions of risk than when using aggregate estimates of objective risk. The main contributions include assessing the validity of risk perceptions and their updating, consistently estimating the relationship between MWTP and endogenously perceived risk, and demonstrating the importance of employing risk perception information for accurate benefit measurement.

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.