New Foundations of Cost-Benefit Analysis

by Matthew Adler, Eric A. Posner

Cost-benefit analysis (CBA) has been an important policy tool of government since the 1980s, when the Reagan administration ordered that all major new regulations be subjected to a rigorous test of whether their projected benefits would outweigh their costs. Not surprisingly, CBA has been criticized by many who claim that it neglects, especially on the benefit side, important values that are hard to measure.

In this book, the authors reconceptualize cost-benefit analysis, arguing that its objective should be overall well-being rather than economic efficiency. They show why the link between preferences and well-being is more complicated than economists have thought. Satisfying a person's preference for some outcome is welfare-enhancing only if he or she is self-interested and well-informed. Also, cost-benefit analysis is not a super-procedure but simply a way to identify welfare-maximizing policies. A separate kind of analysis is required to weigh rights and equal treatment.

This book not only places cost-benefit analysis on a firmer theoretical foundation, but also has many practical implications for how government agencies should undertake cost-benefit studies.

256 pages, Hardcover

First published October 1, 2006

About the author

Matthew Adler’s work focuses on three areas: policy analysis, risk regulation, and constitutional theory. He is the author of numerous articles and several books, including New Foundations of Cost-Benefit Analysis (Harvard, 2006; co-authored with Eric Posner); and of the forthcoming Well-Being and Equity: A Framework for Policy Analysis, which systematically discusses how to integrate considerations of fairdistribution into policy analysis (Oxford 2011). Adler is an editor of Legal Theory, the leading journal in the area of law and philosophy. His edited volume, The Rule of Recognition and the U.S. Constitution (Oxford 2009; edited with Ken Himma) is an innovative work at the intersection of jurisprudence and constitutional theory, which discusses the applicability of H.L.A.’s notion of a “rule of recognition” to the U.S. legal system. Adler was recognized by law students in 2001 and 2006 with the Harvey Levin Memorial Award for Excellence in Teaching. In 2007, he received the University’s Lindback Award for Distinguished Teaching and in 2010 the A. Leo Levin Award for Excellence in an Introductory Course.

Reviews

[Rob Moore · Rating 1 out of 5]

So much wrong with this book. At its heart, the authors try very hard to define "welfare" in a way that departs from traditional cost-benefit foundations of willingness to pay for goods. While they do come away with a more "correct" definition of welfare in a philosophical sense, they depart from the purpose of cost-benefit analysis in the first place, which is to measure changes in social surplus under conditions of alternative public policy interventions. Ultimately, this undermines the value of cost-benefit analysis in practice.