Cost–Benefit Analysis and Distributional Preferences

Cost–Benefit Analysis and Distributional Preferences

A Choice Modelling Approach

Helen Scarborough and Jeff Bennett

Advancing the incorporation of equity preferences in policy analysis, this book demonstrates the application of choice modelling to the estimation of distributional weights suitable for inclusion in a cost–benefit analytical framework. A platform for discussion of the challenges and opportunities of this approach is presented in the form of a detailed case study designed to estimate community preferences for different intergenerational distributions. While the case study is focused on natural resource management and environmental policy, the conceptual and methodological advances illustrated by the authors are relevant and applicable to a wider array of policy deliberations.

Chapter 1: Distribution and Environmental Policy

Helen Scarborough and Jeff Bennett

Subjects: economics and finance, environmental economics, public finance, public sector economics, valuation, environment, environmental economics, valuation


1.0 Introduction The question of a ‘fair’ allocation is one with which we all grapple in many contexts. For those in decision-making positions such as policy-makers, teachers and parents, it involves the difficult task of weighing up competing claims. These claims may be presented on the basis of allowing for special needs, compensating for handicaps, rewarding additional effort or striving for equality. Economists are well aware that, as a society, we are not able to meet the unlimited wants of each individual. The fundamental issue of scarcity necessitates decisions about allocation. The questions of how resources are used as efficiently as possible to maximize the well-being of people and how the distribution of resources is made ‘equitably’ are fundamental questions in economics. This book focuses on the latter question – that is, the equity or distributional aspect of economic analysis. The complexity of the notion of social justice confounds research into the equity principles and preferences held by the community. As will be discussed in Chapter 2, it is assumed that each individual has distributional preferences which can be interpreted in a social welfare ordering. Social welfare preferences may be based on a variety of justice principles. General ethical principles under lying discussions about fair allocation fall into several categories. The principles either formulate more specific interpretations of utilitarianism, where the wellbeing of each individual is summed, or apply alternative or complementary ethical frameworks (Banuri et al. 1996). For example, distributional preferences may be based on rewards according to contribution, equality...

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