Cost Benefit Analysis Failings: Short List

A while back I put together this "top ten list" as to why people like me don't like what we consider over-quantified and over-monetized Cost-Benefit Analysis. Posting them here might jump-start a discussion:

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Top Ten Reasons Why Cost Benefit Analysis Fails in Public Choice Settings!
Dave Iverson
(For more literature references, see my Critiques of Cost Benefit Analysis)

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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 champion public cost accounting as an input in public choice, and even support some comparison of costs to receipts. Still, in general I disdain most formalized 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" [PDF, 305 kb].

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.

Top Ten Reasons Why Cost Benefit Analysis Fails in Public Choice Settings!
Dave Iverson
(For more literature references, see my Critiques of Cost Benefit Analysis)

Comments

[J.S.]

These critiques are weak on many levels and seem to indicate a lack of understanding with respect CBA:

1. You say "CBA favors the whims of economic analysis over the judgements of society"

This is a largely vacuous statement- which judgments of society do you refer to? What are the whims of economic analysis?

2. "Community and public interests make up most of CBA"

Wrong- almost all of the values in most major environmental CBA are benefits to public health

3. CBA is an efficiency criteria, not an equity criteria, so complaining that it doesn't address fairness is silly- CBA was never meant to be and never should be the ONLY criteria used in evaluating public policy

4. Discounting is an issue with all public works whether we use CBA or not

5. Uncertainty is a big deal and not a single economist believes that uncertainty should be relegated to numbers because it can't be!!! You mistake risk for uncertainty, a common mistake among people who don't understand the details and subtleties of conomics.

What society needs is more CBA, rather than less- if we did, we would probably have sensible energy policy, less military spending, more spending on health, more on land conservation, and less nukes- the above critiques suppose that without economics there is some large public consensus out there of how to make public policy that is just waiting to be expressed by groups of people sitting around holding hands in full agreement- wrong- again, my beef with EE is that people critique what they don't even fully understand and substitute vacuous proclamations instead. You don't need to embrace economics, but please at least try to understand it!!! The world needs more rationality not less!!!

J.S.

[BenE]

I think benefit cost analysis can be usefull but i recognise it can easily be manipulated by omiting certain costs or benefits and most importantly by misusing discounting. I posit that long term environmental benefits should usually not be discounted.

Here are the different reasons I can think that justify discounting:

The first reason is that individuals thinks something is worth more now than later. There isn’t any intrinsic reason that something would be worth more now but there are practical reasons to adopt this strategy. It can be justified by taking into account the risks that either the thing won’t be available later, or that some personal situation makes the person not able to enjoy it later. (The extreme case being death)

This works well for individuals, but when scaling up to the entire population and with respect to the environment it doesn’t apply. It is a fallacy to assume that the future has intrinsically less value without any justification. Everybody’s now is somebody else’s later. Hence if you make the sum of the individuals in any time frame and there is no variation (growth or decline) in valuable goods or population, the value of a time period, by symmetry, is the same everywhere on the time line. This is simply saying that assuming no growth, the environment is as valuable to your children as to you.

However there is another reason to discount the future which applies to large groups and this is economic growth. Things become relatively less valuable with time when development and technology replaces them with better or greater amount of things. Thus one reason to discount the future’s environment is that technology and greater resources in the future will make it less costly to repair whatever damage we do today. Another thing is that the damage we do will be smaller in comparison to our greater population, if the population is greater whatever damage is done to the environment will be shared amongst more people.

These effects are the same as economic growth and in the short term it is easily measured by using the interest rate of a secure investment. When the mitigation of environmental damage has a fixed cost, you are better to invest your money make interest on it and later do the repairs. You will have made a profit on the interests. This can be promoted with strong property rights where people can choose when to invest in the environment of their property to keep its value.

However, it is stupid to assume that global growth will necessarily continue indefinitely. There are physical limits where no technology can repair the damage we do or we reach a maximum size for the global economy. The earth cannot sustain exponential growth. (discounting is exponential in nature) It cannot sustain 10 trillion human beings.

What is paradoxical is that by destroying the environment we destroy the resources that are necessary to sustain the growth that is the very reason that makes it ok to sometimes discount the future. This is a dangerous viscous circle and a slippery slope that could bare sudden consequences if we discount too much and don’t secure the future. In fact it is possible at some point that population will decrease or that oil will run out resulting in the economy being reduced. This could leave our children with fewer resources to deal with problems we transferred to them when we discounted their time. If this happens you could argue that it would have been rational to give more value to the environment of the future instead of less to mitigate the effects of the greater challenges (ex. the lack of cheap energy) that our children will face. It is quite possible that these challenges make environmental resources more valuable and not less in the future in which case protecting the environment is simply like a long term investment.

[Tracy W]

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

What are public or community interests if not individual interests?

E.g., if how could global warming damage my community without damaging at least some people (or maybe all people) in my community?

"All substantive human and/or environmental issues have roots at least as deep in who we are as in what we want. "

An example being?

"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. "

And dropping CBAs would make this weighing easier because?

" Instead "trade framing" honors characteristics such as egoism, acquisitiveness, shrewdness, competitiveness.... ", and cooperation, looking for mutual advantage, accountabilty, trust.

People in communist societies or hunter-gatherer societies are not noted for being any better morally than people in capitalist societies.

"CBA treats people as caricatures: as atomistic, egoistic, rational, utility maximizing consumers and producers."

How would treating people as irrational improve environmental decision-making?

And, though you don't say this, a utility-maximising consumer can have other people's utility as part of their utility function, or even things like the environment's wellbeing. Atomistic or egoistic is not an essential part of being a utility-maximiser. This is the point of WTP/WTA surveys. You can ask people how much they would spend to maintain the wildlife on a remote island they'll never visit in their lives, and many people will give a positive figure in reply.

""mechanistic, self-interest maximizers in a laissez-faire market" " - how are self-interested maximisers mechanistic (I am heavily influenced by Austrian theories about the importance of information and how the market environment is always changing)? And if it was a true laissez-faire market no CBA of the form you disapprove of would be done. Everyone would just make their own personal evaluations (taking into account whichever people and aspects of the environment they care for), and there would be no need for public decision-making.

"8. Unwillingness to pay must be addressed alongside willingness to pay."

Personally I think a much more serious problem is that CBA asks people questions in isolation, without a situation where people must consider their total budget constraint. I suspect we'd wind up with lower willingness to pays/unwillingness to pays per individual project if one survey was carried out each year asking people's willingness to pay for the whole sweep of environmental problems.

Also, if it deeply concerns you, CBAs can be done on a "willingness to accept" measure (How much would you need to be paid to do x...). Or all WTP surveys could have an option of infinity.

"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."

And dropping CBA makes this problem less difficult how? I presume here you are referring to the "framing effect" problem - that many people will make opposite choices when a situation is presented as a gain, versus a loss. (See http://www.cs.umu.se/kurser/TDBC12/HT99/Tversky.html for an experimental example if you don't know what I'm talking about).

[Dave Iverson]

Tracy W.

Here are a few responses while I'm on the road:

* What are public or community interests if not individual interests?

Public interests include law, policy, rules, regulations, and some public ideas/actualities like, e.g. "public lands." Individuals have interest in protecting public ideas and public institutions quite apart from their personal interests.

* "All substantive human and/or environmental issues have roots at least as deep in who we are as in what we want. "
An example being?

Many so-called "existence values," for example, whether they be public institutions or just the idea of community, whether it be a family unit, or a larger community of interest or community of place. I prefer, of course, that such be qualified rather than attempting to make them quantified and monetized.

*"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." And dropping CBAs would make this weighing easier because?

Because in political/administrative decision-making, all factors are brought into the frame, not just some. The trick is to get folks to work up appropriate frames, that include usually some financial information--since economics and finance are important aspect of all problems. I have never argued that this is easy, and yes, there is too much off-topic talk in political discourse, some by design, some not. But pretending that all can be "added up" doesn't help either, since it can not.

* Everyone would just make their own personal evaluations (taking into account whichever people and aspects of the environment they care for), and there would be no need for public decision-making.

Anarchy sounds good until you try to drive automobiles without stoplights, until you try to deal with your neighbors, some of them much different from you, without law or police, etc.

*... Normally risk adverse people, for example, will sometimes enter into high-stakes gambles to avoid big losses in what they now have." And dropping CBA makes this problem less difficult how? I presume here you are referring to the "framing effect" problem....

Yes, in part I am refering to the "framing effect," and thanks for the link.

For more context, take a look at Deborah Stone's POLICY PARADOX: THE ART OF POLITICAL DECISION MAKING, Margaret Jane Radin's CONTESTED COMMODITIES, Elizabeth Anderson's VALUE IN ETHICS AND ECONOMICS, etc.

[Tracy W]

"Individuals have interest in protecting public ideas and public institutions quite apart from their personal interests."

Actually I don't. There is a long list of ideas and public institutions I have no interest in protecting. E.g. racism, the idea that men have a right to beat their wives, Zimbabwae's current Government. I don't see any interest in protecting these. And the ideas and institutions I do want to protect I want to protect because I have a personal interest (in a broad sense of personal, I have been known to care about other people).

"public institutions or just the idea of community" or etc.

So even if I don't want a particular community or a public interest, or etc, you think this is part of what I am, and thus should be protected? And even if every single member of said community doesn't want a public institution to exist anymore, it should be protected?

"Because in political/administrative decision-making, all factors are brought into the frame"

Honey, have you ever been in a political/administrative decion-making process? A major problem is figuring out what all the relevant factors are.

"Anarchy sounds good until you try to drive automobiles without stoplights, until you try to deal with your neighbors, some of them much different from you, without law or police, etc."

I was pointing out that obviously CBA is not applied in a laissez-faire market. Not arguing for anarchy.

[Dave Iverson]

* "So even if I don't want a particular community or a public interest, or etc, you think this is part of what I am, and thus should be protected? And even if every single member of said community doesn't want a public institution to exist anymore, it should be protected?"

No. But it is the stuff we fight over -- and should -- in political discourse.

* "...have you ever been in a political/administrative decision-making process? A major problem is figuring out what all the relevant factors are."

Precisely.. This is why we need to spend so much public sphere time in our democratic "temples of talk" figuring it out. This is the toughest nut to crack: appropriate framing. See, e.g., George Lakoff, DON'T THINK OF AN ELEPHANT: KNOW YOUR VALUES AND FRAME THE DEBATE

* "I was pointing out that obviously CBA is not applied in a laissez-faire market."

Now I'll challenge you, Tracy: Show me a "laissez-faire market." Those I label free-market screech monkeys -- not you, at least not yet -- keep saying, Markets do it better. Less government! Less government! I say, Let's make better market mechanisms AND better government.

Earlier I forget to mention two other important books: Mark Sagoff, THE ECONOMY OF THE EARTH and James March, A PRIMER ON DECISION MAKING: HOW DECISONS HAPPEN. I guess I need to put together a file with my favorite readings on this subject..

[Tracy W]

"No. But it is the stuff we fight over -- and should -- in political discourse. "

So what is it that you were arguing in your point 2?

One of the interesting results of WTP surveys is that you can ask people how much they are willing to pay from something they will obtain no discernable material benefits from (e.g. saving a bird species on a remote island they will never visit, supporting the survival of languages with few speakers on another continent, etc), and many people will give you a positive figure in response. We also see that many people give money and/or time to charities with no discernable material benefit to themselves or only the most remote connection.

What you appear to be arguing in point 2 is that decision-making should go beyond this personal interest. That even if no individual in a community thinks a particular idea or institution worth spending a cent to save (insert local currency unit as appropriate if you like), there is still a public or community interest in saving it.

This doesn't make sense to me.

"This is why we need to spend so much public sphere time in our democratic "temples of talk" figuring it out. "

And dropping CBA helps how with this?

"* "I was pointing out that obviously CBA is not applied in a laissez-faire market."

"Now I'll challenge you, Tracy: Show me a "laissez-faire market."

You mistake my argument. I am saying that Margaret Jane Radin's statement that CBA treats people as "mechanistic, self-interest maximizers in a laissez-faire market"' isn't a true description of the world for two reasons:

1. How does participating in a market make people mechanistic?

2. If you had a true laissez-faire market, there would be no need to apply CBA methods in the sense we are talking about here, as the government would never do anything, so evidently CBA does not treat people as participants in a "laissez-faire market".

To give another example, I might argue that characterising the Aztec religious beliefs as a "gentle, peace loving people" is wrong, without therefore being necessarily personally in favour of human sacrifice.

[Dave Iverson]

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

My point is that administrators and legislators often use the cover of CBA to hide behind instead of dealing directly with issues of public interest. Certainly both need to deal with issues of private interest as well, and have to be careful not to pull money away from people needlessly through frivilous taxation, but the point remains. The crutch of CBA tends to be just that unless it IS the politican's decision which it usually is not since the task is delegated to economists.

* "How does participating in a market make people mechanistic?."

It doesn't. It is the assumptions behind CBA that renders people such. More later, I've got to run off to work..

[Tracy W]

"My point is that administrators and legislators often use the cover of CBA to hide behind instead of dealing directly with issues of public interest. Certainly both need to deal with issues of private interest as well, and have to be careful not to pull money away from people needlessly through frivilous taxation, but the point remains. The crutch of CBA tends to be just that unless it IS the politican's decision which is usually is not since the task is delegated to economists."

I have no idea what this means or how this relates to your original point 2. Please explain.

And in my experience, legislators tend to ignore CBAs in favour of an analysis of which decision will best improve their chances of being re-elected.

* "How does participating in a market make people mechanistic?."

"It doesn't. It is the assumptions behind CBA that renders people such. "

What assumptions?

Sorry, I have done a number of CBAs, and read a number of others. I do not see how asking people how much they would be willing to pay to keep the Chatham Islands black robin alive is meant to render people mechanistic. I do not see how estimating the number of people a new stadium might bring to the city means rendering people mechanistic.

There are some treatments of course that are mechanistic. My heart sends blood around the body by a mechancial process. If I was shot in the heart, I would probably die thanks to that mechanical process inteferring with the mechancial process of my heart. A surgeon cutting out a tumour is treating a human by a mechanistic process.
Doing a CBA on a new vaccine by considering the disability-adjusted-life-years saved by the vaccine from the infection against the disability-adjusted-life-years cost of people injuried by the vaccine itself may be interpreted as treating people in a mechanistic process - but that is because, to at least some extent, our bodies operate mechanistically, and that fact will not be altered by dropping CBAs. My heart will keep pumping blood around my body, my veins will still use valves to stop the blood going the wrong way, etc. (And in my experience, CBAs on medical treatments do not distinguish between harm caused by purely physical means and harm caused at least partly by mental means through the body-mind interaction, so they are still not treating people as purely mechanistic).

[Dave Iverson]

You are right Tracy about my answer as to #2. not really answering your question. Too much wine with dinner last night, and too little sleep. Still, I consider the point I made as valid: "...administrators and legislators often use the cover of CBA to hide behind instead of dealing directly with issues of public interest."

Let's try again to address your failure to understand point #2. "Community and public interest do not show up in the CBA calculus. Instead, public interest is reduced to the sum of private interests."

If you ask someone what they are willing to pay for something, you are measuring private, not public interest, no? And if we attempt to measure the sum of all our private interest inquiries, we still end up measuring private interest which can be something very different from public interest which doesn't lend itself to quantitative measurement as far as I can tell. See, particularly

THEORETICAL WELFARE ECONOMICS, by J. de V. Graaff, (Cambridge University Press, Cambridge, 1975 (first published 1957))

"Choices without Prices without Apologies," by Arild Vatn and Daniel W. Bromley, Journal of Environmental Economics and Management 26: 129-148, (1994)

THE GOOD SOCIETY. Robert N. Bellah, Richard Madsen, William M. Sullivan, Ann Swidler, and Stephen M. Tipton. Vintage Books. (1991)

Cited here with relevent quotes:
http://www.fs.fed.us/eco/eco-watch/econcritiques.html

As to: "How does participating in a market make people mechanistic?" And my answer, "It doesn't. It is the assumptions behind CBA that renders people such. " And your question: "What assumptions?"

What are the basic assumptions about people in microeconomic reasoning generally? Aren't they about individualistic consumers and producers maxizing individual (or an individual firm's utility)? They are about people (or better stated an aspect of people's behavior when) running around producing and consuming things. Second order consideration is given, layered on top of the assumptions, to how innovation is interjected into the system. No consideration is given to communal aspects of human community.

You say, "Sorry, I have done a number of CBAs, and read a number of others. I do not see how asking people how much they would be willing to pay to keep the Chatham Islands black robin alive is meant to render people mechanistic."

Asking the question doesn't render them "mechanistic." But it doesn't help in answering policy questions either, since there aren't very effective means to stop people from playing political games with the survey, to realistically appraise the hypothetical prospect you are asking them about, etc.

See, e.g. citations from Complexity: The Emerging Science at the Edge of Order and Chaos, by M. Mitchell Waldrop, (Simon and Schuster, 1992) from materials at the hyperlink above.

By the way, I've looked over whole bunch of BCA analyses in my long tenure as a government bureaucrat. I find them woefully lacking, for the most part. One of them assessed the value of bird-watching in the SE part of the USA at a "value" high enough to retire the National Debt. My long experience in the mis-adventures of BCA is what led me to become a strident critic of the technique.

P.S. If you want to pursue the "mechanistic" issue further, please read Radin's book. Then we will talk more. I was simply using her soundbites to try to attract people to read her deeper insights.

[Lee A. Arnold]

The contention that CBA is an efficiency criteria, but not an equity criteria, is directly contradicted by the use of contingent valuation or willingness-to-pay. I'd be willing to pay about ten quadrillion dollars to save the Chatham Islands black robin, but I don't have that kind of money. This budget-constraint criterion makes it an equity issue, which makes it a ballot-box issue.

It is liable that economic analysis applied to ecological concerns produces largely nonsense on the ecological side, and that economic analysis should be restricted to situations where policymakers must decide between two different developments, a shopping mall vs. a hospital, for example. I suspect that cost-benefit on the environment had more intellectual validity back in the old days when people supposed that ecological damage was not so bad because it seemed that there was plenty of pristine environment remaining, and that species had not tallied an extinction-debt. Of that illusion we have quickly become disabused.

[Tracy W]

"If you ask someone what they are willing to pay for something, you are measuring private, not public interest, no? And if we attempt to measure the sum of all our private interest inquiries, we still end up measuring private interest which can be something very different from public interest which doesn't lend itself to quantitative measurement as far as I can tell. "

So, we're back to arguing that even if every single member of society thinks that the current Zimbabwae Government should be drop-kicked out the nearest window, there's still an interest in maintaining it? I'm sorry, but I'm not clear how you think that there's a sense in which there's a split between the sum of private interests (broadly defined) and public interests.

There can be some cases when people are ignorant, and do not realise enough to fully evaluate their own interests (e.g. if they do not realise how close a fish species is to collapse). Is this what you are referring to?

Or, on thinking about it, can you be referring to the split between certain views of the world? Sometimes my view alters depending on the situation. E.g. generally I think the police must have warrants before searching a house. But, when a small child here in NZ was kidnapped and held for ransom, then I would have accepted a limited warrant for racing through a house checking for said kid. (Now I am a bit more distant emotionally, and would not accept such a trade-off). Or, apparently when you ask people in a survey if they believe in freedom of speech, a majority says yes. If you ask people if they believe in freedom of speech, including allowing people to say offensive things, a majority say no, although that is the first question. In these sort of situations, quite what someone's interest "truly is" is difficult to define.

"They are about people ... running around producing and consuming things. "

Nothing to rule out here that people are running around producing and consuming community or whatever word you want to apply. I am part of a large, close family and I spend a fair bit of time and resources on relationships, be that phone conversations, or bringing meals round to someone who's having an emergency, or taking care of small kids, or going to 60th birthday celebrations, or etc. (Sometimes an activity is definitely producing, sometimes when I'm on the receiving end, I'm definitely consuming, sometimes it's both). Communities don't just happen by themselves. They require individual people to put effort in. If I don't knock on my new neighbours' door and invite them round or otherwise contact them, and if they don't knock on my door, then there's no community there.

And people are willing to put a fair bit of effort and money into community. Just look at the number of people travelling to be with family over Christmastime.

These aspects of our production and consumption aren't explicitly stated in Econ 101, but they are there implicilty.

One is perfectly free to include "participating in a community" as part of people's utility functions. It may not be useful for CBAs on "saving a species on some remote island you will never visit" but for questions like "should we build a new national museum". Perhaps CBAs for investments like the latter should include WTP surveys.

"there aren't very effective means to stop people from playing political games with the survey, to realistically appraise the hypothetical prospect you are asking them about, etc. "

I don't know of any method that does. My grandma was a participant in the Household Economic Survey once and put all her spending into the two-week period under the belief that that would lead the government to raise her pension.

Voting has similar problems.

"One of them assessed the value of bird-watching in the SE part of the USA at a "value" high enough to retire the National Debt."

Now this sort of thing is a serious problem. I believe that someone has added up all the various things that are meant to harm the economy (such as time spent on big sports tournaments, or watching solar eclipses or answering unnecessary phone calls) and worked out that the total cost is more than GDP. :)

But, on the other side, I still think an explicit consideration of costs and benefits and an attempt to assign numbers where doable has value. At least it gives you something you can argue about in detail.

"I'd be willing to pay about ten quadrillion dollars to save the Chatham Islands black robin, but I don't have that kind of money."

So in other words you're not willing to pay ten quadrillion dollars because you can't pay ten quadrillion dollars.

Budget constraints are a continual problem. As any environmentalist will tell you, the Earth has limited resources - and while advances in knowledge can increase those resources it still doesn't make it infinite. When the NZ goverment put resources into saving the Chatham Islands black robin, the amount of resources available to tackle other environmental/social/economic/etc problems went down. Those bird specialists on the Chathams were consequently, thanks to the laws of physics, not available to look after the South Island wetas, or monitor the water quality in Lake Taupo. The boat that carried them over and bought over supplies was therefore not available at the same time to carry supplies to the Faroes Islands. And more broadly, the time the policy-makers spent thinking about the Chatham Islands black robins was time they did not spend thinking about say biosecurity (something important that is not caught by CBA). I am not arguing that saving the Chatham Islands black robin was therefore wrong, just pointing out there is an unavoidable budget constraint. (There is quite a bit of government spending I'd cut in favour of saving another endangered bird species, for a start the NZ government has a silly habbit of giving money to elite sportspeople).

[Lee A. Arnold]

Absolutely not -- not having ten quadrillion dollars is NOT the same as not being willing to pay it. It still expresses my valuation of that wildlife. I understand budget constraint. And of course wildlife biologists draw a salary, and you might have to hire more of them. But this is relatively peanuts. In saving endangered species in the U.S., it is not the hot issue. In fact it hardly costs anything to leave things alone. The policy argument is usually over defining the lost profit of a foregone development as a "cost." It is not. Indeed, since economic growth can happen in a myriad of ways, another profit might be made elsewhere.

There is, of course, the cost to the taxpayers of buying-out the private property owners to preserve a wilderness.

Earth may have an absolute physical limitation on resources, but it remains an open question as to whether this is a final constraint on economic growth. Why? Because economic value is also created by more efficient technologies and by new forms of organization (as I think Daniel O'Connor in another post is calling economic "depth",) not merely by expanding the consumption of resources and landscape. We learn to do things better, and we learn to do them quicker. Here is the history of the world: Economic value has grown logarithmically, while using only around 90% of earth's pristine wildernesses. These two figures do not match up! Of course, this does not make resources "infinite," but it certainly makes a generalized discussion of this type to be undecidable.

We are of course approaching a crunch by population explosion, but that is a different problem. Budget constraints are short-run and indeed momentary, not long-run. In fact they are political, not finally economic.

Indeed given the reality of "extinction debt," it would appear that wildlife biology makes the case that some economically-developed landscape must be reclaimed for wilderness, in order for many if not most species to survive.

[Tracy W]

Lee, if the NZ government had waited for growth in the stock of knowledge to remove the budget constraint the Chatham Islands black robin would almost certainly have gone extinct (it was down to one breeding pair).

"In fact it hardly costs anything to leave things alone."

Actually it does in NZ. Most bird species endangered in NZ are endangered by predators such as rats, stoats, dogs, etc introduced by Maori and/or Europeans. If these predators are not at least controlled, then bird species die. NZ native forests are endangered by possums, not controlling their numbers means that trees die. (I've recently been tramping in Taranaki Forest Park, which, unlike my normal stomping grounds of the Tararuas, has a lot of possums. When you look out across the forest there is this dusting of dead trees poking up through the canapoy. This is why my brain is stuck on possums.)

Also, nowadays NZ is facing a labour shortage. (This was not happening when the Chatham Islands black robin was saved.) Unemployment is well below 5% and probably down to pretty much frictional levels. Putting labour on one job means reducing it somewhere else. And health care is a hungry, demanding beast for resources.

More broadly, NZ simply does not have 10 quadrillion dollars to spend on saving the Chatham Islands black robin. GDP is less than $200 billion a year(NZD). And, if we did have 10 quadrillion dollars, I'd first spend it on reducing greenhouse gas emissions before saving the Chatham Islands black robin. I am not confident that growth in the knowledge stock will be fast enough to escape that trap.