Environmental and Resource Economics

, Volume 32, Issue 1, pp 13–24

Is Cost–Benefit Analysis Anomaly-Proof?

Authors

    • Economics DepartmentUniversity of Stirling
  • Jason F. Shogren
    • Department of Economics and FinanceUniversity of Wyoming
Article

DOI: 10.1007/s10640-005-6026-2

Cite this article as:
Hanley, N. & Shogren, J.F. Environ Resource Econ (2005) 32: 13. doi:10.1007/s10640-005-6026-2

Abstract

In this paper we examine whether cost–benefit analysis is anomaly-susceptible or anomaly-proof. To do this, we address four questions. These are, which anomalies, or problems seem most troublesome for CBA? What coping strategies does the analyst adopt to address these problems? Do these adaptation strategies create new problems? And finally, does adopting these strategies invalidate the results of CBA, or reduce the power of its advice? The anomalies we consider are (i) the observed differences between willingness to pay and willingness to accept compensation measures of value; (ii) valuation given information limits, preference uncertainty and preference construction; (iii) hypothetical market bias; (iv) risk perceptions; and (v) risk and preference reversals. We focus our discussion on the estimation of non-market environmental benefits and costs.

Keywords

anomaliesbehavioural economicscost–benefit analysispreference reversalsrationality

Copyright information

© Springer 2005