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Distributional Weights in Cost-Benefit Analysis—Should We Forget about Them?

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  • Olof Johansson-Stenman

Abstract

Many argue that it is socially inefficient to use distributional weights in cost-benefit analysis, and that doing so implies large inefficiency losses,when distributional matters can be dealt with trough income taxation, instead. Our results question this view, by showing a large range of cases when distributional weights are (second-best) optimal to use. One example is when different provided goods affect tax-revenues equally per dollar spent; utility functions that are separable in the provided goods is sufficient for this. Most results hold for linear and non-linear income taxes and whether they are optimal or not. General policy implications are discussed.

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Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 81 (2005)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:uwp:landec:v:81:y:2005:i:3:p337-352
Contact details of provider: Web page: http://le.uwpress.org/

Keywords:

Find related papers by JEL classification:

  • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
  • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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  1. P. A. Diamond, 1975. "A Many-Person Ramsey Tax Rule," Working papers 146, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
  3. Yitzhaki, Shlomo, 2003. "Cost-Benefit Analysis and The Distributional Consequences of Government Projects," National Tax Journal, National Tax Association, vol. 56(2), pages 319-36, June.
  4. Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
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  7. Olof Johansson-Stenman, 1998. "On the problematic link between fundamental ethics and economic policy recommendations," Journal of Economic Methodology, Taylor & Francis Journals, vol. 5(2), pages 263-297.
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Cited by:

  1. David Anthoff & Richard S. J. Tol, 2008. "On International Equity Weights and National Decision Making on Climate Change," CESifo Working Paper Series 2373, CESifo Group Munich.
  2. David Anthoff & Cameron Hepburn & Richard S.J. Tol, 2006. "Equity weighting and the marginal damage costs of climate change," Working Papers FNU-121, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2006.
  3. Karel Martens, 2011. "Substance precedes methodology: on cost–benefit analysis and equity," Transportation, Springer, vol. 38(6), pages 959-974, November.
  4. Snorre Kverndokk & Adam Rose, 2008. "Equity and Justice in Global Warming Policy," Working Papers 2008.80, Fondazione Eni Enrico Mattei.
  5. Glenn Jenkins & Chun-Yan Kuo & Arnold C. Harberger, 2011. "Cost-Benefit Analysis for Investment Decisions: Chapter 14 (The Shadow Price of Government Funds, Distributional Weights, and Basic Needs Externalitiess)," Development Discussion Papers 2011-14, JDI Executive Programs.
  6. Nyborg, Karine, 2014. "Project Evaluation with Democratic Decision-making: What Does Cost-benefit Analysis Really Measure?," Memorandum 08/2014, Oslo University, Department of Economics.
  7. Shyam KC, 2013. "Cost Benefit Studies on Disaster Risk Reduction in Developing Countries," World Bank Other Operational Studies 16111, The World Bank.
  8. Adler, Matthew & Treich, Nicolas, 2014. "Consumption, Risk and Prioritarianism," TSE Working Papers 14-500, Toulouse School of Economics (TSE).
  9. Paul Watkiss & Federica Cimato, 2016. "The economics of adaptation and climate-resilient development: lessons from projects for key adaptation challenges," GRI Working Papers 235, Grantham Research Institute on Climate Change and the Environment.
  10. Anna Brink & Katarina Nordblom & Roger Wahlberg, 2007. "Maximum fee versus child benefit: a welfare analysis of Swedish child-care fee reform," International Tax and Public Finance, Springer, vol. 14(4), pages 457-480, August.
  11. Scarborough, Helen & Bennett, Jeff, 2008. "Estimating intergenerational distribution preferences," Ecological Economics, Elsevier, vol. 66(4), pages 575-583, July.
  12. Yamaguchi, Rintaro, 2012. "Discounting, Distribution and Disaggregation," MPRA Paper 46322, University Library of Munich, Germany.

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