Tag: cost-benefit analysis

How (Not) to Lie With Benefit-Cost Analysis

In the current issue of The Economists’ Voice, the former Chief Economist for the US General Accounting Office Scott Farrow  addresses the uses and abuses of Benefit-Cost Analysis (BCA), also known as Cost-Benefit Analysis.  He highlights some common abuses and ways to avoid them.  Below you will find a few samples.  His short article (only 6 pages) contains many more.

Lie #1. Be selective in your impacts and values

Response:  Ask “Are there major elements missing, or too many present in this analysis?”

Lie #2.  Confuse the baseline

Response: Ask “What is the basis of comparison?  Is that reasonable and is it (almost always) the same for both benefits and costs?”

Lie #3.  Count jobs entirely as a benefit

Response: Ask “Are new jobs just being taken away from other location that is included in our calculation?”

I encourage you to read the details and not to forget the advice of British economist Alan Williams who concluded in a marvelous paper in 1972 entitled “Cost-Benefit Analysis: Bastard Science? and/Or Insidious Poison in the Body Politick? that

CBA is not the way to perfect truth, but the world is not a perfect place… I prefer the philosophy embodied in the answer Maurice Chevalier is alleged to have given to an interviewer who asked him how he viewed old age: ‘Well, there is quite a lot wrong with it, but it isn’t so bad when you consider the alternative.’