Behavioral cost-benefit economics: Toward a new normative approach to policy
AbstractThis paper addresses the question of whether the findings of behavioral economics imply that techniques used in cost-benefit analysis should be modified. The findings of behavioral economics considered include the status-quo effect, loss-aversion, overconfidence and hyperbolic discounting. These behavioral phenomena do indeed imply that concepts from cost-benefit analysis such as consumer surplus, the Kaldor-Hicks criterion, shadow-price valuation, and time discounting, need to be modified. The most important modifications follow from the status-quo effect, which provides a new reason to reject policy proposals that yield only small percentage benefits relative to costs.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26370.
Date of creation: 2002
Date of revision:
Cost-Benefit Analysis; Behavioral Economics; Status-Quo Effect; Loss Aversion; Overconfidence; Hyperbolic Discounting;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
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