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Is Cost–Benefit Analysis Anomaly-Proof?

  • Nick Hanley

    ()

  • Jason Shogren

In this paper we examine whether cost–benefit analysis is anomaly-susceptible or anomaly-proof. To do this, we address four questions. These are, which anomalies, or problems seem most troublesome for CBA? What coping strategies does the analyst adopt to address these problems? Do these adaptation strategies create new problems? And finally, does adopting these strategies invalidate the results of CBA, or reduce the power of its advice? The anomalies we consider are (i) the observed differences between willingness to pay and willingness to accept compensation measures of value; (ii) valuation given information limits, preference uncertainty and preference construction; (iii) hypothetical market bias; (iv) risk perceptions; and (v) risk and preference reversals. We focus our discussion on the estimation of non-market environmental benefits and costs. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s10640-005-6026-2
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 32 (2005)
Issue (Month): 1 (09)
Pages: 13-24

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Handle: RePEc:kap:enreec:v:32:y:2005:i:1:p:13-24
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100263

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  1. Carson, Richard T & Groves, Theodore, 2010. "Incentive and Information Properties of Preference Questions," University of California at San Diego, Economics Working Paper Series qt88d8644g, Department of Economics, UC San Diego.
  2. Shogren, Jason F., 2006. "Experimental Methods and Valuation," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 19, pages 969-1027 Elsevier.
  3. Huffman, Wallace E. & Shogren, Jason F. & Rousu, Matthew C. & Tegene, Abebayehu, 2003. "Consumer Willingness to Pay for Genetically Modified Food Labels in a Market with Diverse Information: Evidence from Experimental Auctions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(03), December.
  4. Todd L. Cherry & Thomas Crocker & Jason F. Shogren, 2001. "Rationality Spillovers," Working Papers 01-02, Department of Economics, Appalachian State University.
  5. Nick Hanley & Jorunn Grande, & Begoña Álvarez-Farizo & Carol Salt & Mike Wilson, . "Risk perceptions, risk-reducing behaviour and willingness to pay: radioactive contamination in food following a nuclear accident," Working Papers 2001_4, Business School - Economics, University of Glasgow.
  6. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 73-105, February.
  7. Cherry, Todd L. & Shogren, Jason F., 2007. "Rationality crossovers," Journal of Economic Psychology, Elsevier, vol. 28(2), pages 261-277, April.
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