Principles and Standards for Benefit–Cost Analysis

Principles and Standards for Benefit–Cost Analysis

Edited by Scott O. Farrow and Richard Zerbe, Jr.

Benefit–cost analysis informs which policies or programs most benefit society when implemented by governments and institutions around the world. This volume brings together leading researchers and practitioners to recommend strategies and standards to improve the consistency and credibility of such analyses, assisting analysts of all types in achieving a greater uniformity of practice.

Introduction: professionalizing benefit–cost analysis

Scott Farrow and Richard O. Zerbe Jr.

Subjects: economics and finance, public sector economics, valuation


Many policy and economic analysts are familiar with benefit–cost analysis whether learned through formal courses or on-the-job training. These analyses are routinely developed at the federal level while many more are customized efforts at the federal, state, or local levels or in think tanks and academia. Various government agencies and the Executive Office of the President have taken time from mission-oriented tasks to develop BCA guidelines. Generally implicit in these guideline efforts is the goal of improving the quality of analysis. Within economics, the eminent economist Arnold Harberger called for a professionalization of BCA standards in the 1970s (Harberger, 1971). However, professionalization, as it may involve aspects of licensing, quality signaling, or restricting entry, is not an automatically desirable practice to economists. A large literature exists on the role of professional licensing as a means to capture rents by limiting entry. Equally large is the literature on asymmetric information in which there is a concern that bad quality products will drive good quality ones from the market, for which one recommendation is a certification of quality.