Tuesday, March 04, 2008

ECON 260: The Federal Perspective on Cost-Benefit Analysis

Here are the guidelines that OMB provides policymakers who are engaging in cost-benefit analysis:
The OMB guidelines are divided into an introduction and three sections: (1) a statement of the need for the proposed action; (2) an examination of alternative approaches; and (3) analysis of benefits and costs. The introduction states that an Economic analysis (EA) should provide sufficient information for decisionmakers to determine:
  • there is adequate information demonstrating a need for and the consequences of the proposed regulatory action,
  • the potential benefits justify the potential costs, considering that not all benefits can be expressed in monetary terms,
  • the proposed action will maximize net benefits to society, unless a statute mandates another approach,
  • where a statute mandates a specific approach, the proposed action will be the most cost-effective, and
  • agency decisions are based on the best reasonably available scientific, technical economic and related information.
  • Click the link to see them discussed in (slightly) more detail.

    parts of it sound like they are copied and pasted straight out of an econ 100 textbook eh?! market failure occurs when......
    It also seems like they're taking assuming the efficiency standard:

    "if the potential benefits justify the costs" and "benefits to society are maximized."

    I find it remarkable that government spending attempts to be so precise in the area of environmental protection but is completely inefficient in many other arenas (see: national defense, education). Shouldn't we be more cavalier with our money when it comes to protecting the environment?
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