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The Normative Implications of Political Decision-Making for Benefit-Cost Analysis

Listed author(s):
  • Krutilla Kerry

    (Indiana University, Bloomington)

  • Alexeev Alexander

    (Indiana University, Bloomington)

Registered author(s):

    The Potential Pareto criterion, or Kaldor-Hicks standard, presumes that costs are not fully compensated. Yet, uncompensated costs can incentivize costly political activity and create uncertainty about political outcomes. These consequences are not reckoned in the standard benefit-cost analysis. This study models political costs and uncertainty as a function of project parameters and political-institutional characteristics. The economic consequences of political behavior are then incorporated into an adjusted project evaluation standard. This standard assures that the project’s conventionally measured net benefits are sufficient to cover political costs and uncertainty about the decision-making outcome.

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    File URL: https://www.degruyter.com/view/j/jbca.2012.3.issue-2/2152-2812.1112/2152-2812.1112.xml?format=INT
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    Article provided by De Gruyter in its journal Journal of Benefit-Cost Analysis.

    Volume (Year): 3 (2012)
    Issue (Month): 2 (May)
    Pages: 1-36

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    Handle: RePEc:bpj:jbcacn:v:3:y:2012:i:2:n:2
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