Edited by Scott O. Farrow and Richard Zerbe, Jr.
Chapter 9: Incorporating distributional issues into benefit–cost analysis: why, how, and two empirical examples using non-market valuation
The origin of benefit–cost analysis (BCA), in both theory and practice, has its historical roots in the pursuit of economic efficiency, with less attention paid to distributional concerns. In the last decade there has been growing interest among federal and state agencies in displaying elements traditionally omitted from BCA, such as how the benefits and costs are distributed geographically, by income groups, and by ethnicity. In the case of applying BCA to evaluate social policies from preschool education to prison reform, distributional goals are often an explicit part of the policy design (Long et al., 1981; Vining and Weimer, 2010). The thrust of this chapter, and recent papers by others (Zerbe, 2007; Schmitz and Schmitz, 2010; Vining and Weimer, 2010), is that the information provided by BCA should be broadened to explicitly include discussion and display of the distributional effects of the project. For the purposes of this chapter, distribution is an extension of positive economic analysis to quantify who gains (and by how much) and who loses (and by how much). Equity deals with the more normative issue of whether the distribution of these benefits and costs is “fair” or not using criteria such as ability to pay. While this discussion will address both distribution and equity, the empirical examples will focus on how to monetize the distribution of benefits from non-market goods and resources.
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