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Is Cost–Benefit Analysis Anomaly-Proof?

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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.

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  1. Economics Department, University of Stirling, Stirling Fkg 4LA, UK

    Nick Hanley

  2. Department of Economics and Finance, University of Wyoming, Laramie, Wyoming, USA

    Jason F. Shogren

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  1. Nick Hanley
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Hanley, N., Shogren, J.F. Is Cost–Benefit Analysis Anomaly-Proof?. Environ Resource Econ 32, 13–24 (2005). https://doi.org/10.1007/s10640-005-6026-2

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