Willingness-to-pay as stand-in for economic value

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Theory and Practice in Policy Analysis, Chapter 3 – Around the world (and especially in any locations that have ties to the US), benefit-cost analysis is the primary decision-making criteria of governments and corporations. Doing a benefit-cost analysis is pretty conceptually simple (you may already have experience with BCA). But there are a lot of important assumptions that go into BCA, most of which are never even considered by those who actually carry it out. This chapter (and the next reading) basically dig into the ethics of BCA, including ways that it might be unfair. We already use this tool all the time to make important decisions, and these readings dig into what BCA can and can't tell us.

What is the issue with using prices to estimate benefits and what is the correct way of framing them? Should the value of (all) things be based on the number of people that use them? What are some issues with “willingness-to-pay” as a stand-in for economic value? What is the Pareto criterion and why is it almost impossible to meet? What is the Kaldor-Hicks criterion and what are some ethical issues with it? What are some of the practical/political issues with the way that BCA is applied? What do you think about the Precautionary Principle as an alternative to BCA? In the end, is BCA a useful tool?

Reference no: EM132165565

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