Cost Benefits Analysis
RegBlog posted a series of three essays on allowable and appropriate use of BCA in regulatory decision making. A link to the set of articles is at the bottom of this post. Please read all three as well as the introduction. The first leans heavily toward legal precedent, but the essay by Sinden and response by Graham and Noe deal more substantively with BCA itself.
Some things you might address include:
One issue that arises is the form of BCA - formal vs. informal. What do you think of this? Is this distinction meaningful? To the extent there is a distinction is informal BCA useful – and when?
What do you think of Sinden’s conclusion that BCA “requires putting a dollar value on intangibles – like good health and a clean environment – that are impossible to measure in monetary terms.”
Sinden has doubts about the utility of BCA and whether it does – or even can – identify regulations that do more harm than good.Graham and Noe suggest the opposite and that the only way to distinguish regulations that do good and those that cause harm is through assessment of benefits and costs.What do you think of the merits of these differing viewpoints?
More generally, how important do you think BCA is for regulatory decision making?For example, is it best to require positive net benefits for regulations, or should BCA play a less prominent role?Are there cases where it should not be done at all?
Here is the link to the essays: http://www(dot)regblog(dot)org/2016/09/26/debate-cost-benefit-analysis/
Directions:
1) Give substantive comment to the guiding questions in a casual, informal post. Your response should show your understanding and ability to apply what you have head in the lectures and read in your text to this scenario.
Cost Benefits Analysis
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Cost Benefits Analysis
A cost-benefit analysis (BCA) is a process/decision-making tool used to determine the benefits of a particular decision relative to the arising process costs. It often entails applying financial metrics, which include, among other things, costs and the revenue generated. Despite its seemingly simple theoretical applications, it is a highly controversial issue because of the underlying process concerns in making critical regulatory decisions. For instance, despite overwhelming bipartisan support from Congress, opponents such as Siden express obloquy in favor of BCA's lesser satisfactory alternatives because of the challenges monetizing some policy benefits. However, the ensuing contention is not proof of absolute resolve to reject its application, but what specific issues related to the application. Key among this is the distinction between formal and informal applications. This distinction is quite important and worthy of consideration. Formal BCA presumes an official mandate to conduct analysis using predetermined procedures. This could require monetization of all the benefits and thorough detailing of the costs. The implication for this is to cement CBA as the primary decision-making tool. This would mean aspects of costs and benefits that are difficult to account for would be left out entirely during decision-making and would never count in making a decision. This is dangerous as it can cause serious oversights.
On the other hand, informal BCA entails qualitative projections of costs and benefits during decision-making. This implies that a regulator has no mandatory obligation to monetize benefits but is free to rely on estimations balancing alone. Importantly, it is not possible to write off the significance of informal CBA, particularly in circumstances where monetization of some aspects is impossible. This is not, however, a loophole for a scanty review of benefits and costs. Informal analysis too demands thorough and rigorous assessment to improve the accuracy of qualitative projections. Undeniably, informal BCA is seemingly more applicable because of the operative nature of most regulations' benefits and costs. That notwithstanding, sight should not be lost of the fact that, if quantification were possible without any issues, then there would be no reason to refuse its application.
The Siden's resentment of the BCA represents every rational think...