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 6: Choice Modelling and Distributional Preferences: Challenges and Opportunities

Helen Scarborough and Jeff Bennett

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


6.0 INTRODUCTION The case study presented in Chapters 4 and 5 has shown that choice modelling has the potential to be applied as a method for eliciting distributional preferences. This finding has important implications for the refinement of CBA as a decision-making tool both in environmental contexts and the broader policy sense. The policy implications of the results are in terms of intergenerational equity and the application of distributional weights in CBA. They raise a number of contentious issues which are discussed in this chapter. The subsequent discussion surrounds the efficacy, complications and limitations of incorporating distribution in decision-making. Hence, this chapter focuses on the challenges and opportunities associated with the application of the stated preference technique of choice modelling to the estimation of distributional preferences. The need for further research to enhance our understanding of distributional preferences is also addressed. The findings suggest many interesting, challenging and exciting potential developments for further research. 6.1 DISTRIBUTION AND CBA Even if distributional preferences can be estimated, three central questions remain about the application of distributional weights in CBA. First, there is the appropriateness of including equity considerations in CBA, particularly given the inherent efficiency cost. Second, there is a problem about the aggregation of social welfare preferences, given that this requires a decision about whose social welfare preferences should be incorporated in an analysis. And third, determining the characteristic, or combination of characteristics, of the population upon which distributional preferences are to be estimated must also be addressed. Although income distribution...

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