Distributional Analysis of Infrastructure with Weighted BCA

Distributional analyses have long been recognized in federal benefit-cost analysis (BCA) guidelines but with little information on the best ways to perform such analyses or to combine the results with BCA when evaluating options. One form of distributional analysis, weighted BCA (wBCA), was endorsed by the U.S. Office of Management and Budget in 2023. A wBCA entails weighting individuals’ benefits and costs, based on their incomes, to better capture the value of outcomes to them. The estimated weights of a wBCA account for individuals’ diminishing marginal utility of income, that is, the assumed declining value of a dollar’s worth of benefits as a person’s income increases. Analytically, weights are combined with BCA results to determine an alternative societal value of a policy or project. This paper discusses the data, methods and issues that can arise in implementing wBCAs for infrastructure projects, especially when a conventional BCA has already been completed. The implementation method outlined here is then applied to an actual flood risk mitigation project. The paper concludes with comments on how wBCA and BCA may be jointly considered in project evaluation to support implementation decisions.