IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Behavioral Economics and the Conduct of Benefit-Cost Analysis: Towards Principles and Standards

  • Hammitt, James
  • Robinson, Lisa

As traditionally conducted, benefit-cost analysis is rooted in neoclassical welfare economics, which, in its most simplified form, assumes that individuals act rationally and are primarily motivated by self-interest, making decisions that maximize their welfare. Its conduct is evolving to reflect recent work in behavioral economics, which explores the psychological aspects of decisionmaking. We consider several implications for analyses of social programs, focusing largely on economic valuation. First, benefit-cost analysis often involves valuing nonmarket outcomes such as reductions in health and environmental risks. Behavioral research emphasizes the need to recognize that these values are affected by psychological as well as physical attributes. Second, benefit-cost analysis traditionally uses exponential discounting to reflect time preferences, while behavioral research suggests that individuals’ discounting may be hyperbolic. While the appropriate rates and functional form are uncertain, market rates best represent the opportunity costs associated with diverting funds to support a particular social policy or program. Such rates reflect the intersection between technological progress and individual preferences, regardless of whether these preferences fit the standard economic model or a behavioral alternative. Third, behavioral research emphasizes the need to consider the influence of other-regarding preferences on valuation. In addition to acting altruistically, individuals may act reciprocally to reward or punish others, or use the status of others as the baseline against which to assess their own well-being. Fourth, behavioral economics identifies factors that can help researchers develop valuation studies that provide well-informed, thoughtful preferences. Finally, while behavioral research has led some to argue for a more paternalistic approach to policy analysis, an alternative is to continue to focus on describing the preferences of those affected by the

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www2.toulouse.inra.fr/lerna/travaux/cahiers2011/11.02.336.pdf
File Function: Full text
Download Restriction: no

Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 11.02.336.

as
in new window

Length:
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:ler:wpaper:23892
Contact details of provider: Postal: manufacture des Tabacs, 21 allée de brienne, 31200 Toulouse
Phone: (+33) 5 61 12 86 23
Web page: http://www.toulouse.inra.fr/lerna/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Robert Sugden, 2005. "Anomalies and Stated Preference Techniques: A Framework for a Discussion of Coping Strategies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 1-12, 09.
  2. Sugden, Robert, 2009. "Market simulation and the provision of public goods: A non-paternalistic response to anomalies in environmental evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 87-103, January.
  3. Beshears, John Leonard & Choi, James J. & Laibson, David I. & Madrian, Brigitte, 2008. "How Are Preferences Revealed?," Scholarly Articles 11130523, Harvard University Department of Economics.
  4. V. Kerry Smith, 2008. "Reflections on the Literature," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 292-308, Summer.
  5. Carlsson, Fredrik, 2009. "Design of stated preference surveys: Is there more to learn from behavioral economics?," Working Papers in Economics 418, University of Gothenburg, Department of Economics.
  6. Cameron Hepburn & Stephen Duncan & Antonis Papachristodoulou, 2010. "Behavioural Economics, Hyperbolic Discounting and Environmental Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 189-206, June.
  7. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  8. Kahneman, Daniel & Knetsch, Jack L., 1992. "Valuing public goods: The purchase of moral satisfaction," Journal of Environmental Economics and Management, Elsevier, vol. 22(1), pages 57-70, January.
  9. Jason Shogren & Gregory Parkhurst & Prasenjit Banerjee, 2010. "Two Cheers and a Qualm for Behavioral Environmental Economics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 235-247, June.
  10. Mary Riddel & W. Shaw, 2006. "A theoretically-consistent empirical model of non-expected utility: An application to nuclear-waste transport," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 131-150, March.
  11. Alistair Munro, 2009. "Introduction to the Special Issue: Things We Do and Don’t Understand About the Household and the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(1), pages 1-10, May.
  12. John List, 2005. "Scientific Numerology, Preference Anomalies, and Environmental Policymaking," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 35-53, 09.
  13. Fredric Jacobsson & Magnus Johannesson & Lars Borgquist, 2007. "Is Altruism Paternalistic?," Economic Journal, Royal Economic Society, vol. 117(520), pages 761-781, 04.
  14. Alberini, Anna & Cropper, Maureen & Krupnick, Alan & Simon, N.B.Nathalie B., 2004. "Does the value of a statistical life vary with age and health status? Evidence from the US and Canada," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 769-792, July.
  15. Smith, V. Kerry & Pattanayak, Subhrendu K. & Van Houtven, George L., 2006. "Structural benefit transfer: An example using VSL estimates," Ecological Economics, Elsevier, vol. 60(2), pages 361-371, December.
  16. James K. Hammitt, 2007. "Valuing Changes in Mortality Risk: Lives Saved Versus Life Years Saved," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 1(2), pages 228-240, Summer.
  17. Johansson-Stenman, Olof, 2008. "Mad cows, terrorism and junk food: Should public policy reflect perceived or objective risks?," Journal of Health Economics, Elsevier, vol. 27(2), pages 234-248, March.
  18. Jack Knetsch, 2010. "Values of Gains and Losses: Reference States and Choice of Measure," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 179-188, June.
  19. V. Smith & Eric Moore, 2010. "Behavioral Economics and Benefit Cost Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 217-234, June.
  20. Olof Johansson-Stenman & James Konow, 2010. "Fair Air: Distributive Justice and Environmental Economics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 147-166, June.
  21. Douglas Bernheim & Antonio Rangel, 2007. "Beyond Revealed Preference Choice Theoretic Foundations for Behavioral Welfare Economics," Discussion Papers 07-031, Stanford Institute for Economic Policy Research.
  22. Daniel Kahneman & Robert Sugden, 2005. "Experienced Utility as a Standard of Policy Evaluation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 161-181, 09.
  23. Jagadish Guria & Joanne Leung & Michael Jones-Lee & Graham Loomes, 2005. "The Willingness to Accept Value of Statistical Life Relative to the Willingness to Pay Value: Evidence and Policy Implications," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 113-127, 09.
  24. Jacinto Braga & Chris Starmer, 2005. "Preference Anomalies, Preference Elicitation and the Discovered Preference Hypothesis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 55-89, 09.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ler:wpaper:23892. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxime MARTY)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.