"The effect of income choice on bias in policy decisions made using cost-benefit analyses"
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Authors
Courard-Hauri, David
Issue Date
2004-12-01
Type
Article
Language
en_US
Keywords
Cost-benefit analysis , Economic valuation , Ecological valuation , Consumption , Income choice
Alternative Title
Abstract
Cost-Benefit Analysis (CBA) is often used in policy decisions to determine the economic
value of various choices. Although the effects of income disparity are well accepted, one
of the reasons for the success of this type of analysis is that many policy-makers and analysts
consider the results of a well-crafted analysis to be largely free of partisan or political
bias. Here I propose that tradeoff between the benefits of various possible jobs or careers
introduce a significant bias into values imputed based upon willingness to pay measures. In
particular, I demonstrate why we might expect the values of various segments of society to be
differentially appreciated by CBA. Empirical evidence is presented indicating that there is a
significant negative correlation between the importance an individual places on income and
the willingness of that individual to forgo consumption in favor of environmental improvement,
as well as a correlation between the importance of income and actual income. These
results suggest that CBA as a tool of welfare economics is likely to be biased against environmental
protection because concerned individuals are likely to choose careers which do not
maximize consumption, thus decreasing their ability to pay for both real and hypothetical
environmental improvements. Moreover, the size of this bias appears to be large.
Description
David Courard-Hauri is an Assistant Professor of Environmental Science and Policy at Drake University in Des Moines, Iowa. His e-mail address is david.courard-hauri@drake.edu
Citation
Ecological Economics, Volume 51, Issues 3-4, 1 December 2004, Pages 191-199
Publisher
Elsevier Science Incorporated
License
Journal
Volume
Issue
PubMed ID
DOI
ISSN
0921-8009