Who cares about "equity" in cost-benefit analysis?
Robert Hahn’s editorial Equity in cost-benefit analysis in the April 30 issue of Science is a good rundown of the pitfalls in using cost-benefit analysis techniques to aid complex regulatory decision making. Having done my share of number crunching to support management decision making I’m well aware that, as Hahn states, “the devil is in the details.”
He recommends more research especially at the front end to identify and if possible quantify “winners” and “losers” regrading a projected action. As he notes, getting details of the relative sizes and makeup of different subpopulations among these winners and losers is costly and at times very difficult to quantify.
Not discussed by Hahn is the reality that with many government programs enabling legislation does not always detail a quantitative definition of intended program benefits. Agencies required to assess alternative approaches to carrying out authorized programs, lacking specifics on what intended benefits are, must fall back on “accepted” or “tried and true” methodologies which, as Hahn points out, rarely provide insight into how different groups will be impacted.
I also approach terms like “equity” with caution given how difficult they are in practice to define and measure. Many programs and projects have both winners and losers. Inevitably situations arise where certain groups are benefitted more than others. When this happens, it helps to know if this is what was intended so that concepts like “equity” are not misinterpreted.
Text copyright (c) 2021 by Dennis D. McDonald