Edited by Scott O. Farrow and Richard Zerbe, Jr.
Chapter 1: An assessment of important issues concerning the application of benefit–cost analysis to social policy
Social policy can be defined as the laws, rules, directives, programs, and other instruments employed by government to increase investments in human capital, encourage behaviors with positive externalities, discourage behaviors with negative externalities, or reduce disparities in wealth, income, or consumption. Social policy includes a range of substantive policy areas that encompass early childhood development, education, physical and mental health, juvenile justice, crime and corrections, housing, income support, and employment. How should society in general, and government agencies in particular, assess the value of the vast array of social policy interventions that are either proposed or operating? Benefit–cost analysis (BCA) provides a framework for comprehensively taking account of the full range of social benefits and costs. Indeed, BCA is the only normative framework that explicitly claims to assess these costs and benefits comprehensively. Although BCA has traditionally been applied primarily to infrastructure investments, economic regulation, and environmental policy, it is now increasingly being applied to social policy (for a comprehensive review, see Weimer and Vining, 2009). The application of BCA to potential social policies requires both prediction of the effects of investments of scarce resources by society and the valuation of these effects in a money-metric, normally present-value dollars. The purpose of BCA is to identify the most efficient policy.
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