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Benefit-Cost Analysis of Environmental Projects: A Plethora of Biases Understating Net Benefits

Published online by Cambridge University Press:  19 January 2015

Philip E. Graves
Philip E. Graves*
Affiliation:
University of Colorado at Boulder
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Abstract

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There are many reasons to suspect that benefit-cost analysis applied to environmental policies will result in policy decisions that will reject those environmental policies. The important question, of course, is whether those rejections are based on proper science. The present paper explores sources of bias in the methods used to evaluate environmental policy in the United States, although most of the arguments translate immediately to decision-making in other countries. There are some “big picture” considerations that have gone unrecognized, and there are numerous more minor, yet cumulatively important, technical details that point to potentially large biases against acceptance on benefit-cost grounds of environmental policies that have true marginal benefits greater than true marginal costs, both in net present value terms. It is hoped that the issues raised here will improve future conduct of benefit-cost analyses of environmental policies.

Keywords

benefit-cost analysisenvironmental policydecision makingchoice behaviorpublic goodswillingness-to-paywillingness-to-acceptprecautionary principlehedonic methodssum of specific damageshealth effects modelenvironmental perceptionstravel cost method
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 3 , Issue 3 , 23 August 2012 , pp. 1 - 25
Copyright
Copyright © Society for Benefit-Cost Analysis 2012

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