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An Aggregate Measure for Benefit-Cost Analysis

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  • Bauman, Yoram
  • Finkle, Aaron
  • Zerbe, Jr., Richard O.

Abstract

The Kaldor-Hicks (KH) criterion has long been the standard for benefit-cost analysis, but it has also been widely criticized for ignoring equity and, arguably, moral sentiments in general. We suggest replacing KH with an aggregate measure called KHM, where the M stands for moral sentiments. KHM simply adds to the traditional KH criterion the requirement that any good for which there is a willingness to pay or accept count as an economic good. This suggested expansion of KH, however, must confront objections to counting moral sentiments in general and non-paternalistic altruism in particular. We show that these concerns are unwarranted and suggest that the KHM criterion is superior to KH because it provides better information.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 310.

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Date of creation: Aug 2005
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Handle: RePEc:reg:wpaper:310

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  1. Paul R. Portney, 1994. "The Contingent Valuation Debate: Why Economists Should Care," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 3-17, Fall.
  2. Winter, Sidney Jr., 1969. "A simple remark on the second optimality theorem of welfare economics," Journal of Economic Theory, Elsevier, vol. 1(1), pages 99-103, June.
  3. Palfrey, Thomas R & Prisbrey, Jeffrey E, 1997. "Anomalous Behavior in Public Goods Experiments: How Much and Why?," American Economic Review, American Economic Association, vol. 87(5), pages 829-46, December.
  4. repec:att:wimass:9309 is not listed on IDEAS
  5. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall.
  6. McConnell, K. E., 1997. "Does Altruism Undermine Existence Value?," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 22-37, January.
  7. Andreoni, James, 1995. "Cooperation in Public-Goods Experiments: Kindness or Confusion?," American Economic Review, American Economic Association, vol. 85(4), pages 891-904, September.
  8. Per-Olov Johansson, 1992. "Altruism in cost-benefit analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(6), pages 605-613, November.
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Cited by:
  1. Benazzo, Piero, 2010. "Equity Criteria as Instrument to Ensure Sustainability of Pareto or Kaldor-Hicks Efficiency: A Correlation Hidden by Sources of Confounding as Key for Sorting Out the Global Economic Crisis," MPRA Paper 23678, University Library of Munich, Germany.
  2. Gunawardena, U.A.D. Prasanthi, 2010. "Inequalities and externalities of power sector: A case of Broadlands hydropower project in Sri Lanka," Energy Policy, Elsevier, vol. 38(2), pages 726-734, February.
  3. Daniel M. Hausman, 2012. "Why Satisfy Preferences?," Papers on Economics and Evolution 2011-24, Max Planck Institute of Economics, Evolutionary Economics Group.

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