The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members.

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Arguably, the current state of social discounting is this: faced with a choice between understating capital costs by discounting at the Social Time Preference Rate (STPR) and understating future benefits by discounting at the Social Opportunity Cost Rate (SOCR), practitioners have mostly chosen to understate capital costs. While the need to apply the Shadow Price of Capital (SPC) correction is widely recognized, it is seldom applied in practice, and when it is, the adjustments typically leave capital costs understated. The most recent review of the literature, Groom et al. (2022), shows that researchers focus largely on defining alternative STPRs and on the search for discounting methods, such as declining discount rates (DDRs), that tend to value future benefits more highly. OMB’s 2023 revision of Circular A-4 reflected the same orientation: “The 7% discount rate is dropped […] to reflect advances in the economics literature. […] As many prominent economists noted, uncertainty in long-run discount rates provide compelling justification for the use of declining discount rates. […] Together, these improvements to discounting will—as a group of distinguished economists noted—‘substantially improve US regulatory analysis’ by ‘modernizing discounting guidance.’” While this revision was rescinded in 2025, thereby restoring the 7% rate, the quote nevertheless reflects a widely held view.

My paper “Social Discount Rate Dilemmas in Benefit-Cost Analysis,” forthcoming in the Athens Journal of Business and Economics, proposes a change of course. It offers a solution to the long-standing dilemma of which discount rate to use. By first computing capital costs at the SOCR and then discounting the remaining net benefits at the STPR, the analyst no longer needs to choose between the two rates. The two-rate discounting method understates nothing; its essence is to make capital costs explicit. The procedure defines, for each project, a funding flow that is the exact negative of the project’s primary net flow until capital costs are fully amortized. During the investment phase, the funding flow is positive and offsets the negative values of the project flow. Once the project flow turns positive, the funding flow becomes negative, as all benefits are first devoted to amortizing the committed capital stock and the interest accrued on it at the SOCR, offsetting the positive flow. The funding flow thus exactly cancels out the project’s net flow until the capital stock and accrued interest have been amortized; thereafter the funding flow becomes zero, and any further positive values in the project flow constitute net benefits.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members.

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Throughout my career I have been aware of the use of benefit cost analysis (BCA) or engineering economics studies to justify new projects or capital investments for government agencies and private companies. It always struck me as curious that rarely do government councils require a post-project implementation return on investment study.

Benefit cost analysis is most powerful when it is applied in both  theory and reflective practice – from asking the questions “how can we evaluate this?” and “what economic information can best support this decision-making process?”  to “did this investment actually deliver what we thought it would?” providing data that can be appreciated in the reflection process post project and act as a baseline to be iterated upon.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

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This post first appeared as an essay in the Regulatory Review:https://www.theregreview.org/2026/02/04/dudley-valuing-the-benefits-of-reducing-fine-particles/

The New York Times reported recently that the U.S. Environmental Protection Agency (EPA) no longer plans to quantify the benefits of reducing exposure to certain air pollutants as it evaluates the need for regulation. In a final rule governing combustion turbines issued in January, EPA expressed concerns that its past “analytical practices often provided the public with a false sense of precision and more confidence regarding the monetized impacts of fine particulate matter (PM₂.₅) and ozone than the underlying science could fully support.” The rule announced that “to rectify this error,” EPA will no longer monetize the benefits associated with reducing these two pollutants.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

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This essay was originally published in The Regulatory Review, a publication of the Penn Program on Regulation.

As Cass Sunstein famously argued in a book published almost 25 years ago, the modern administrative state has become, in important respects, a benefit-cost state. Although benefit-cost analysis was once criticized as a deregulatory tool that would systematically disfavor environmental, health, and safety regulation, experience has increasingly shown otherwise.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

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At the 2025 SBCA annual conference in Washington DC, John Whitehead organized a panel session titled “Frontiers in Environmental Valuation” (at Vic Adamowicz’s suggestion). The session was presided over by Tim Haab and the panelists included Mark Dickie, University of Central Florida; Rob Johnston, Clark University; Jonathan Lee, East Carolina University; Frank Lupi, Michigan State University; Kent Messer, University of Delaware; George Parsons, University of Delaware; and Christian Vossler, University of Tennessee. In part the session arose because John and Tim (and Lala Ma) are editing a new Handbook on Environmental Valuation and the session participants were authors on several of the chapters. To kick off the discussion, Tim posed a fascinating question to the panel: “What will environmental valuation look like in 10 years?” The question resulted in a discussion from the panel members as well as several members of the audience. This blog post summarizes some of the themes that emerged, as well as our own thoughts and reflections on the topic. We hope it fosters discussion on the frontiers of valuation and promotes research on valuation.

1. Data

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

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The idea that decisions should be based on careful evaluation of the positive and negative impacts of alternative policies has enormous appeal, as demonstrated by the extensive use of benefit-cost analysis around the world. However, as conventionally implemented, benefit-cost analysis is based on strong normative assumptions. To measure individual wellbeing, it relies on individuals’ willingness to exchange their own income for the outcomes they themselves experience. To measure societal welfare, it relies on simple aggregation of these values across individuals. Although many alternatives have been proposed, they are not as well-developed nor widely used, and their normative dimensions have not necessarily been thoroughly explored.

To address these concerns, the Brocher Foundation hosted a 2022 Summer Academy, “Healthy, Wealthy, and Wise - The Ethics of Health Valuation,” selected by the Foundation’s Scientific Committee and organized by Lisa Robinson, Nir Eyal, Samia Hurst, and Daniel Wikler. As indicated in the program (which includes links to related readings), participants explored multiple dimensions of several alternatives to the conventional approach. Examples include measures of subjective well-being (“happiness”), equivalent income, and healthy life years, as well as social welfare functions. Variants include those that assign extra weight to benefiting the very young, or the poor, the unhealthy, or the otherwise disadvantaged.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

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In December 2024, I stepped down—on my own terms—from a long and deeply rewarding career as an economist in the federal government. Since then, I’ve been observing the policy world from the outside, immersing myself in current debates, and reflecting on the evolving role of benefit-cost analysis (BCA). Old habits die hard, and I often find myself thinking about how I might approach today’s policy challenges—and what advice I’d offer to former colleagues and decision-makers navigating them.

One development that caught my attention was the January 2025 executive order establishing the Department of Government Efficiency (DOGE), with its promise to “maximize governmental efficiency and productivity.” The formation of DOGE teams—each composed of an engineer, a human resources specialist, an attorney, and a team lead—signaled a renewed focus on operational performance. Having spent decades inside government, I’m intimately familiar with the inefficiencies that persist. As I began exploring ideas, I reconnected with a former colleague whose insights on efficiency I deeply respect. Together, we wrote a paper to look at a central claim of a proposed Office of Personnel Management (OPM) rule: that reclassifying federal positions to at-will status would yield large gains in agency efficiency. Our working paper, “From Rhetoric to Reform: Civil Service Employment Structures and the Measurement of Government Efficiency” is now available.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

This post is part of a series on President Trump’s deregulatory record and what we might expect in the new administration.

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 Benefit-cost analysis has been part of the U.S. regulatory development process for over 40 years. The historic record, when coupled with recent actions, raises questions about its continued role ‒ in particular whether the focus will shift increasingly to considering costs without comparison to benefits.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

This post is part of a series on President Trump’s deregulatory record and what we might expect in the new administration.

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 Benefit-cost analysis has been a part of the United States regulatory process for a long time.  It began in the 1970s with efforts by Presidents Ford and Carter to centralize presidential control of regulatory agencies as regulations to protect public health proliferated (https://www.jstor.org/stable/23065472).  In Executive Order 12291, President Reagan required that agencies conduct regulatory impact analyses (RIA) (which included attempts to measure benefits and costs) for a subset of regulations.  While the process was continually revised afterwards (most notably by President Clinton, issuing Executive Order 12866 in 1993), the process for agency issuance of regulations and the role of RIAs looked roughly the same in 2016 as it did in 1981.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

This post is part of a series on President Trump’s deregulatory record and what we might expect in the new administration.

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 Regulatory Budgets in Theory and Practice

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

This post is part of a series on President Trump’s deregulatory record and what we might expect in the new administration.

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With the volatility and uncertainty of the first few weeks of the Trump administration, it is hard not to feel overwhelmed. One way to cope with information overload is to focus on issues where one has particular knowledge and interest. For me, that’s the regulatory process and benefit-cost analysis. In that vein, this post reviews some of the most consequential regulatory directives, and concludes that, while there is room for disagreement on details, the general requirement to base regulations on an understanding of benefits and costs remains intact.

The views presented in On Balance are those of the authors and do not represent the views of the Society, its Board, or its members. 

This post is part of a series on President Trump’s deregulatory record and what we might expect in the new administration. 

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 President Donald Trump has repeatedly claimed that his first Administration achieved an unparalleled reduction in federal regulations. He has boasted, for example, that 25,000 pages of “job-destroying regulations” had been removed—more than under any previous President, he has said. Yet an examination of the Code of Federal Regulations, the authoritative repository of binding federal rules, tells a different story. 

This is the last in a series of four blogs featuring key excerpts from the writings of our founder and past president, Richard Zerbe. His insights shaped the foundation of our association and remain relevant to today’s challenges. We hope these selections offer valuable perspectives to all members.

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The Combined Approach

Issues concerning discount rates span the history of Cost Benefit Analysis (CBA) and Benefit-Cost Analysis (BCA) and have long bedeviled the economics profession.  The debate now is primarily between rates consistent with the Social Rate of Time Preference (SRTP) on the one hand (societal, long-term, and often sustainability-focused) and the Opportunity Cost of Capital (OCC) (private market, short-term, and efficiency-focused) on the other hand. Should decisions be guided by private market returns, though allowing for private consumption displacement (OCC) as suggested by Hargerger, or social welfare over time)? I predict that over time a solution will lie in the realization that both play a role. This combined approach, developed by Szekeres 2024, uses the SRTP after accounting for the cost of capital benefits are used to pay costs down if it pays to do so, as long as the OCC > SRTP. This approach recognizes the value of paying down capital costs is of greater value than the current consumption of benefits, and, for the same reason, encourages doing this as quickly as possible.  An example is given in the Table below in which both the OCC and SRTP are each used separately and together in the combined approach. The example assumes the OCC is 7% and the SRTP is 2%.

This is the third in a series of four blogs featuring key excerpts from the writings of our founder and past president, Richard Zerbe. His insights shaped the foundation of our association and remain relevant to today’s challenges. We hope these selections offer valuable perspectives to all members.

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That moral sentiment whose consideration is the most prominent is the Benefit-Cost Analysis (BCA) treatment of distributional matters.

 

This is the second in a series of four blogs featuring key excerpts from the writings of our founder and past president, Richard Zerbe. His insights shaped the foundation of our association and remain relevant to today’s challenges. We hope these selections offer valuable perspectives to all members.

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The treatment of moral sentiments in Cost-Benefit Analysis (CBA) has had an ambiguous role since Kaldor’s assertion that judgements about distributional effects should be left to the politician.  Yet, Benefit-Cost Analysis (BCA) provides a straightforward approach for evaluating moral sentiments:  moral sentiments should be valued as with any other good by determining the Willingness to Pay (WTP) or Willingness to Accept (WTA) for their realization.

An objection to inclusion of moral sentiments is that if we include their values, we will also need to treat immoral sentiments so both should be avoided.  This is perfectly backward.   BCA would recognize both moral and immoral sentiments, for, one man’s morality is another’s immorality. Critics of including moral sentiments raise utility monster cases.[1] These are cases in which utility from bad actions is multiplied until harm exceeds any gains.   For example, say, Donald and his friends like to beat up Joe.  The disutility to Joe will, we presume, be greater than the utility from the beaters.  Now let’s increase the number of beaters until the summed utility of the beaters exceeds that of the loss to Joe. So, it might seem that immoral sentiments should not count.

This is the first in a series of four blogs featuring key excerpts from the writings of our founder and past president, Richard Zerbe. His insights shaped the foundation of our association and remain relevant to today’s challenges. We hope these selections offer valuable perspectives to all members.

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It is useful to date the major changes in Cost-Benefit Analysis (CBA) from the publication of the 1979 work of Kahneman and Tversky (1979) and the subsequent creation of the Society for Benefit-Cost Analysis (SBCA) - which occurred at a 2007 meeting arranged by the Evans School at the University of Washington at which we proposed to form a Society for Benefit Cost Analysis - with a concomitant Journal. In using the Benefit-Cost Analysis (BCA) terminology we thought to distinguish BCA from its CBA roots in engineering. This distinguishment aimed to provide a more economic flavoring to the name and to practice. I suggest BCA can be usefully seen as a further development or evolution of CBA. Table 1 shows the differences.

Table 1: Differences in CBA and BCA

In honor of Dr. Richard O. Zerbe, the Society for Benefit-Cost Analysis is publishing a highlight series celebrating his remarkable contributions to the field. As a founding member and past president of the Society, Dr. Zerbe’s work has shaped benefit-cost analysis (BCA) by advancing its theoretical and ethical frameworks and championing its integration into public policy and decision-making. His efforts have also expanded BCA’s role in addressing today’s complex societal needs. His influence has inspired generations of scholars and practitioners to view BCA not just as a tool for economic outcomes but as a means of promoting equity, social justice, and sustainability.

Dr. Zerbe’s career has redefined BCA by embedding ethical principles into the heart of the analysis. He has emphasized incorporating moral considerations such as fairness and justice alongside efficiency, broadening BCA’s scope beyond traditional economic metrics. His multidisciplinary approach integrates insights from law, economics, and public affairs, promoting BCA’s application in areas such as environmental protection, health care, and social policy. Zerbe’s perspective ensures that BCA remains a relevant and adaptable tool for addressing complex societal challenges.

This tribute series highlights Dr. Zerbe’s transformative impact on BCA, his dedication to fostering a more inclusive and ethically grounded approach, and his lifelong commitment to advancing the public good. Through his pioneering work, he has empowered analysts and policymakers to develop informed, inclusive, and sustainable policies. Join us this November and December as we celebrate Dr. Zerbe’s legacy and the ways his vision continues to inspire benefit-cost analysis today.

The new White House “Frontiers” report, Advancing the Frontiers of Benefit-Cost Analysis: Progress On Federal Priorities, Insights for the Research Community, and Emerging Topics was published October 16th, 2024, by the Subcommittee on Frontiers of Benefit-Cost Analysis (SFBCA), and Committee on the Environment of the National Science and Technology Council. This follows the inaugural December 2023 White House Press Release: Advancing the Frontiers in Benefit-Cost Analysis, and the accompanying report, Advancing the Frontiers of Benefit Cost Analysis: Federal Priorities and Directions for Future Research, January 2023 White House Fact Sheet: National Strategy to Put Nature on the Nation’s Balance Sheet, and Full Report on developing statistics for environmental-economic decisions. These follow a memorandum issued by President Biden to federal agencies, directing them to monetize their analytical approaches (Modernizing Regulatory Review or Executive Order 14094, Jan. 26, 2021). 

High-Level Summary

The 2024 SFBCA “Frontiers" Report summarizes progress on the five focal areas (effects) identified in the 2023 report that are currently difficult to monetize or quantify in analyses of agency regulations, projects, programs, or other actions; highlights ways for the research community to engage with the policy process and provide policy-relevant science and economics for benefit-cost analyses; and identifies additional frontiers topics.

Emphasis on Policy Relevant Research

On page 22, the most recent Frontiers report notes, "Journals such as PLOS One, the Journal of Benefit-Cost Analysis, and the Journal of Policy Analysis and Management are peer reviewed but use different criteria than a typical academic journal... providing a more welcoming venue for policy-related research".  The following JBCA articles are highlighted: 

The 2024 CBA Forum, held by The Economic Society of Australia New South Wales (ESANSW) earlier this year, brought together some of Australia's brightest minds in economic analysis, policy evaluation, and decision-making. The presentations - a mix of keynotes, panel discussions, and case studies - provided updates on state and national guidelines together with sessions on: Health, Justice, Water, Transport, Environment, Energy, First Nations and Carbon values.

The recordings of the forum are now freely available here. Whether you’re looking to deepen your understanding of CBA techniques or catch up on the discussions you missed, these recordings provide valuable access to the forum’s wealth of knowledge.

We’re thrilled to announce the release of the final group of papers from the upcoming Journal of Benefit-Cost Analysis (JBCA) special issue on the revised Circular A-4. With this release, the full collection of comments submitted by former SBCA presidents and JBCA editors is now available as working papers on the SBCA website.

This concludes our series of early releases, though the official JBCA special issue will follow next year. We hope these papers have provided valuable insights, and we look forward to continuing the conversation around the revised Circular A-4.