Top Ten Reasons Why Cost Benefit Analysis Fails in Public Choice Settings!
Dave Iverson


(For more literature cites, see my Critiques of Cost Benefit Analysis,

1. Cost Benefit Analysis (CBA) favors the whims of economic analysts over moral judgments of society. Some claim that CBA replaces moral judgment with a "scientific method" for calculating individual preferences. I put scientific method in quotes, because in common practice, CBA often seems more akin to sorcery than science.

CBA views choice as instrumental, as means toward the end of achieving maximum satisfaction of consumer preferences. In truth, there are many important ends and many means toward any end. Every end is also a means to some other end; no action is purely a means, and no end is purely an end. It proves beneficial to discuss both means and ends, and to attempt to tailor means to ends. Often, however, the push for analysis crowds out dialogue and inquiry.

(See also my Economic Advice for Forest Managers,
I am a champion of public cost accounting as an input in public choice, and even support some comparison of costs to receipts. Still, in general I disdain most CBA.)

2. Community and public interest do not show up in the CBA calculus. Instead, public interest is reduced to the sum of private interests.

3. CBA treats "consumers" as sovereign, and "citizens" as absent. Even if we were to ignore communal responsibilities and think only about individuals, there is more to life than markets. All substantive human and/or environmental issues have roots at least as deep in who we are as in what we want. "Citizenship issues" must be entertained in public deliberation alongside "consumption issues."

4. Values are not "out there" for the plucking like fruit from trees. Social values are developed, shaped, and reshaped through public inquiry and deliberation as well as through direct experience in nature and society. In common CBA practice, by contrast, analysts take values as "given."

5. There is no straightforward way to weigh and balance what is "external" to the CBA calculation—so-called externalities—relative to what is included. Despite disclaimers, CBA in practice tends to ignore things external to the calculation. At a minimum there is seldom any explanation as to how phenomena internal to the calculation relate to phenomena external to it.

6. Equality, fairness, justice issues are ignored or given short shrift in CBA. Instead "trade framing" honors characteristics such as egoism, acquisitiveness, shrewdness, competitiveness....

CBA treats people as caricatures: as atomistic, egoistic, rational, utility maximizing consumers and producers. (Alternatively said, CBA treats people as "mechanistic, self-interest maximizers in a laissez-faire market" (from Margaret Jane Radin's Contested Commodities, at p. 219,

7. Discounting downgrades the importance of environmental regulation—it "discounts" the future. Despite disclaimers, the norm in CBA analysis is to discount at least some aspects of the future, rather than just to present "opportunity costs for capital," etc. (See also, "Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection"

8. Unwillingness to pay must be addressed alongside willingness to pay. "Unwillingness to pay" (and particularly unwillingness to even allow markets to be constructed) must be addressed alongside willingness to pay and willingness to set up markets. CBA analysis does not allow for such.

9. In CBA calculations for public choice settings, we can never figure out who is supposed to be selling what to whom. "Willingness to pay" and "willingness to sell" (or "willingness to be compensated for") inquires lead to dramatically different numbers due to our psychological makeup. Normally risk adverse people, for example, will sometimes enter into high-stakes gambles to avoid big losses in what they now have. This dilemma remains even if we decide that markets are the name of the game and CBA the tool of choice.

10. Surprise and uncertainty are too profound to be reduced to futuristic numbers. How are we supposed to guess what the "future" is likely to be, and weigh and balance all in deterministic spreadsheet format? CBA requires such no matter how improbable or surprising the future may appear to us.