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Embedding (some) benefit-cost concepts into decision support processes with deep uncertainty

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  • Lempert, Robert J.

Abstract

Benefit-cost analysis (BCA) aims to help people make better decisions. But BCA does not always serve this role as well as intended. In particular, BCA’s aim of aggregating all attributes of concern to decision makers into a single, best-estimate metric can conflict with the differing world views and values that may be an inherent characteristic of many climate-related decisions. This paper argues that new approaches exist that can help reduce the tension between the benefits of providing useful, scientifically based information to decision makers and the costs of aggregating uncertainty and differing values into single best estimates. Enabled by new information technology, these approaches can summarize decision-relevant information in new ways. Viewed in this light, many limitations of BCA lie not in the approach itself, but with the way it is used. In particular, this paper will argue that the problem lies in a process that begins by first assigning agreed-upon values to all the relevant inputs and then using BCA to rank the desirability of alternative decision options. In contrast, BCA can be used as part of a process that begins by acknowledging a wide range of ethical and epistemological views, examines which combinations of views are most important in affecting the ranking among proposed decision options, and uses this information to identify and seek consensus on actions that are robust over a wide range of such views.

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  • Lempert, Robert J., 2014. "Embedding (some) benefit-cost concepts into decision support processes with deep uncertainty," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 5(3), pages 487-514, December.
    • Handle: RePEc:cup:jbcoan:v:5:y:2014:i:03:p:487-514_00
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    Cited by:

    1. Carmela Mariano & Marsia Marino & Giovanna Pisacane & Gianmaria Sannino, 2021. "Sea Level Rise and Coastal Impacts: Innovation and Improvement of the Local Urban Plan for a Climate-Proof Adaptation Strategy," Sustainability, MDPI, vol. 13(3), pages 1-21, February.
    2. Sussman Fran & Weaver Christopher P. & Grambsch Anne, 2014. "Challenges in applying the paradigm of welfare economics to climate change," Journal of Benefit-Cost Analysis, De Gruyter, vol. 5(3), pages 347-376, December.
    3. Krutilla,Kerry Mace & Good,David Henning & Toman,Michael A. & Arin,Tijen, 2020. "Implementing Precaution in Benefit-Cost Analysis : The Case of Deep Seabed Mining," Policy Research Working Paper Series 9307, The World Bank.
    4. Weyant John, 2014. "Integrated assessment of climate change: state of the literature," Journal of Benefit-Cost Analysis, De Gruyter, vol. 5(3), pages 377-409, December.
    5. Graeme Guthrie, 2019. "Real options analysis of climate-change adaptation: investment flexibility and extreme weather events," Climatic Change, Springer, vol. 156(1), pages 231-253, September.
    6. Marjolijn Haasnoot & Maaike Aalst & Julie Rozenberg & Kathleen Dominique & John Matthews & Laurens M. Bouwer & Jarl Kind & N. LeRoy Poff, 2020. "Investments under non-stationarity: economic evaluation of adaptation pathways," Climatic Change, Springer, vol. 161(3), pages 451-463, August.
    7. Dittrich, Ruth & Wreford, Anita & Moran, Dominic, 2016. "A survey of decision-making approaches for climate change adaptation: Are robust methods the way forward?," Ecological Economics, Elsevier, vol. 122(C), pages 79-89.
    8. Marc Fleurbaey, 2018. "Welfare economics, risk and uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(1), pages 5-40, February.
    9. Väinö Nurmi & Karoliina Pilli-Sihvola & Hilppa Gregow & Adriaan Perrels, 2019. "Overadaptation to Climate Change? The Case of the 2013 Finnish Electricity Market Act," Economics of Disasters and Climate Change, Springer, vol. 3(2), pages 161-190, July.
    10. MacGregor, James, 2017. "Determining an optimal strategy for energy investment in Kazakhstan," Energy Policy, Elsevier, vol. 107(C), pages 210-224.
    11. David R. Johnson, 2019. "Improved Methods for Estimating Flood Depth Exceedances Within Storm Surge Protection Systems," Risk Analysis, John Wiley & Sons, vol. 39(4), pages 890-905, April.
    12. Li Jia & Mullan Michael & Helgeson Jennifer, 2014. "Improving the practice of economic analysis of climate change adaptation," Journal of Benefit-Cost Analysis, De Gruyter, vol. 5(3), pages 445-467, December.
    13. Sussman, Fran & Grambsch, Anne & Li, Jia & Weaver, Christopher P., 2014. "Introduction to a special issue entitled Perspectives on Implementing Benefit-Cost Analysis in Climate Assessment," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 5(3), pages 333-346, December.
    14. Li, Jia & Mullan, Michael & Helgeson, Jennifer, 2014. "Improving the practice of economic analysis of climate change adaptation," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 5(3), pages 445-467, December.

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