Rose-Ackerman on Cost-Benefit Analysis

The always astute Susan Rose-Ackerman, the Henry R. Luce Professor of Jurisprudence in the Law School and Political Science Department at Yale (from which she also possesses a PhD in economics), has an interesting new paper, "Putting Cost-Benefit Analysis in Its Place: Rethinking Regulatory Review." Here is the abstract:

Policymakers need to reassess the role of cost-benefit analysis (CBA) in regulatory review. Although it remains a valuable tool, a number of pressing current problems do not fit well into the CBA paradigm. In particular, climate change, nuclear accident risks, and the preservation of biodiversity can have very long-run impacts that may produce catastrophic and irreversible effects. This article seeks to put cost-benefit analysis in its place by demonstrating both its strengths and its limitations. The Obama Administration should rethink the use of CBA as a way to evaluate regulatory policies and develop procedures to restrict its use to policy areas where its underlying assumptions fit the nature of the problem.

I don't think the paper breaks much new ground on the methodological or practical problems of CBA, but it does include an interesting discussion of an alternative called Impact Assessments (IA), which is widely used in the European Union and elsewhere. However, none of the various alternatives for CBA avoids the biggest problems, which include the valuation of non-market goods, the impossibility of  making unambiguous interpersonal utility comparisons, and the setting of social discount rates. Professor Rose-Ackerman is obviously correct, however, that CBA is a tool of only limited utility that should not be elevated to the role of decision rule in social or regulatory policy. She also usefully points out when cost-effectiveness analysis may be more suitable than CBA.

Finally, it's not obvious to me that creating a new organization within (or without) the White House on policy integrity would solve any of the problems she identifies. How would such an organization differ in structure, mission, or political orientation from the current White House Office of Information and Regulatory Affairs in the Office of Management and Budget? It's clear that government CBAs, among other kinds of analysis, require greater consistency in methodology and application. To that end, the Society for Benefit-Cost Analysis is in the process of developing "best practice" standards, which the White House Office of Information and Regulatory Affairs or reviewing courts might one day adopt (as I have recommended in earlier writings, e.g., here). But it's not clear to me that a brand new bureaucracy would improve the situation.