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On Balance: What’s the Score? The Congressional Budget Office and its Role in the Policy Process

The Congressional Budget Office (CBO) plays an important role in the federal legislative process. CBO’s score on a given bill—that is, its estimate of how it would affect the federal budget deficit—can determine whether Congress decides to go forward with the bill, modify it to get a more favorable estimate, or simply drop it. Given their importance, debates over CBO’s scores and the methods they use to produce them can be as controversial as the bills that are being considered. While this controversy can be politically motivated (with advocates on either side of an issue arguing for a score that is more favorable to their position), it also stems from limited understanding of CBO’s intended role in the process—and reflects the difficulty of conducting analyses of benefits and costs in the context of policy decisions.

 

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On Balance: Nobel Laureate Richard Thaler, Behavioral Economics, and Benefit-Cost Analysis

Rational action lies at the heart of neoclassical economics. Sovereign consumers make choices that maximize their utilities. By observing the tradeoffs implicit in actual choices, or eliciting tradeoffs for hypothetical choices, benefit-cost analysts impute willingness to pay for desirable policy impacts and willingness to accept undesirable ones. Yet, it appears that sometimes consumers seem to make mistakes. The field of behavioral economics seeks to provide a more realistic psychological model of consumers and other economic actors that helps us understand apparent deviations from neoclassical rationality. The 2017 Nobel Memorial Prize in Economic Sciences recognizes Richard H. Thaler’s pioneering contributions to behavioral economics.

 

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On Balance: [Not] Lost in Translation -- International Perspectives on Benefit-Cost Analysis

Since its founding in 2007, the Society for Benefit-Cost Analysis (SBCA) has sought to engage scholars and practitioners from across the world. The Society’s current rolls count members from 35 countries. In support of expanding the Society’s international scope, the SBCA co-sponsored a workshop on September 20, 2017—together with the University of Milan and the Centre for Industrial Studies (CSIL)—titled “The Role of CBA in Government Decisionmaking: International Perspectives.” The workshop was held in conjunction with the annual Milan Summer School on Cost-Benefit Analysis of Investment Projects organized by SBCA board member Massimo Florio and CSIL. 

 

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On Balance: Review of "Behavioral Economics for Cost-Benefit Analysis" by David L. Weimer

Behavioral economics finds that under predictable circumstances people sometimes fail to act rationally and in their own best self-interest. In these circumstances, public policies can nudge people towards better choices. For example, people can be nudged to save more, smoke less, lose weight, and buy more energy efficient vehicles and appliances. In addition to providing new insights about how to design public policies (see Chetty 2015), behavioral economics also has implications for how we conduct benefit-cost analysis (BCA). After all, BCA is built on the foundation of neoclassical welfare economics and rationality. This topic has been explored over the years in the Journal of Benefit-Cost Analysis, notably in a March 2016 Special Issue on [Ir]rationality, Happiness, and Benefit-Cost Analysis

 

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On Balance: Consumers Guide to Regulatory Impact Analysis

In the United States and elsewhere, government agencies are required to conduct regulatory impact analyses (RIAs) to weigh the benefits of regulatory proposals against their costs. These RIAs are invaluable tools for informing decision makers about the effects of regulatory choices; even regulatory decisions that are ultimately made on political, legal, ethical, or other grounds will benefit from the structured evaluation of tradeoffs and alternatives that a good RIA provides.


However, dense or complex RIAs can be challenging for policy officials and interested parties to comprehend and interpret, making it difficult to evaluate the evidence presented and to understand the likely consequences of alternative policy choices.

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