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Implementing Cost-Benefit Analysis When Preferences Are Distorted

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  • Adler, Matthew D
  • Posner, Eric A

Abstract

Cost-benefit analysis is routinely used by government agencies in order to evaluate projects, but it remains controversial among academics. This paper argues that cost-benefit analysis is best understood as a welfarist decision procedure and that use of cost-benefit analysis is more likely to maximize overall well-being than is use of alternative decision procedures. The paper focuses on the problem of distorted preferences. A person's preferences are distorted when his or her satisfaction does not enhance that person's well-being. Preferences typically thought to be distorted in this sense include disinterested preferences, uninformed preferences, adaptive preferences, and objectively bad preferences; further, preferences may be a poor guide to maximizing aggregate well-being when wealth is unequally distributed. The paper describes conditions under which agencies should correct for distorted preferences, for example, by constructing informed or nonadaptive preferences, discounting objectively bad preferences, and treating people differentially on the basis of wealth. Copyright 2000 by the University of Chicago.

Suggested Citation

  • Adler, Matthew D & Posner, Eric A, 2000. "Implementing Cost-Benefit Analysis When Preferences Are Distorted," The Journal of Legal Studies, University of Chicago Press, vol. 29(2), pages 1105-1147, June.
  • Handle: RePEc:ucp:jlstud:v:29:y:2000:i:2:p:1105-47
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    File URL: http://dx.doi.org/10.1086/468106
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    Cited by:

    1. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
    2. Felipe Zurita, 2004. "La Tasa de Descuento Revisitada," Documentos de Trabajo 261, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Doucouliagos, Chris & Stanley, T.D. & Giles, Margaret, 2012. "Are estimates of the value of a statistical life exaggerated?," Journal of Health Economics, Elsevier, vol. 31(1), pages 197-206.
    4. Gentry, Elissa Philip & Viscusi, W. Kip, 2016. "The fatality and morbidity components of the value of statistical life," Journal of Health Economics, Elsevier, vol. 46(C), pages 90-99.

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