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Morality, Reason, and Management Science: The Rationale of Cost-Benefit Analysis

Published online by Cambridge University Press:  13 January 2009

David Copp
David Copp
Affiliation:
Philosophy, Simon Fraser Univrsity and University of Illinois at Chicago
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Extract

The Problem

Economic efficiency is naturally thought to be a virtue of social policies and decisions, and cost-benefit (CB) analysis is commonly regarded as a technique for measuring economic efficiency. It is not surprising, then, that CB analysis is so widely used in social policy analysis. However, there is a great deal of controversy about CB analysis, including controversy about its underlying philosophical rationale. The rationales that have been proposed fall into three basic, though not mutually exclusive categories. There are moralist views to the effect that an acceptable CB analysis would provide, or contribute to, an ethical appraisal of proposed policies or projects. There are rationalist views to the effect that an acceptable CB analysis would contribute to the selection of social policies and projects that are “socially rational.” Finally, there are so-called management science views to the effect that the purpose of CB analysis is to promote the achievement of objectives held by the policy maker, whatever they may be. Different positions are available within each of these categories. But there is also the possibility that CB analysis lacks any viable rationale. I will examine some of the major rationales for CB analysis in this paper, and I will suggest that the last view is close to the truth.

Type
Research Article
Information
Social Philosophy and Policy , Volume 2 , Issue 2 , Spring 1985 , pp. 128 - 151
Copyright
Copyright © Social Philosophy and Policy Foundation 1985

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References

1 Mishan, E. J., Cost-Benefit Analysis: An Introduction (New York: Praeger Publishers, 1971), p. 159.Google Scholar

2 See Copp, David and Levy, Edwin, “Value Neutrality in the Techniques of Policy Analysis: Risk and Uncertainty,” Journal of Business Administration, vol. 13 (1982), pp. 161–190.Google Scholar

3 The notion of a procedure of CB analysis is vague, and “procedure” may not be the best word. The idea is that to specify a “procedure” would be to specify a property or properties to be measured by CB analysis, and a set of techniques for measuring that property or those properties.

4 See Sugden, Robert and Williams, Alan, The Principles of Practical Cost-Benefit Analysis (Oxford: Oxford University Press, 1978), p. 89Google Scholar; Mishan, Cost-Benefit Analysis, p. 159, n. 14.

5 Mishan, Cost-Benefit Analysis, p. 159.

6 Nash, Christopher, Pearce, David, and Stanley, John, “An Evaluation of Cost-Benefit Analysis Criteria,” Scottish Journal of Political Economy, vol. 22 (1975), p. 126.CrossRefGoogle Scholar

7 Mishan, Cost-Benefit Analysis, p. 311.

8 Mishan, Cost-Benefit Analysis, pp. 316–317.

9 Sugden and Williams, Principles, p. 90.

10 Nash, Pearce, and Stanley, “Evaluation,” p. 130.

11 Canada, Treasury Board Secretariat, Planning Branch, Benefit-Cost Analysis Guide (Ottawa: 1976), pp. 4, 13, and 31.

12 Mishan, Cost-Benefit Analysis, p. 313.

13 Consider a CB analysis of a proposal to expand an international airport like Heathrow. Are everyone's costs and benefits to be considered, including those of foreign travellers, or just the costs and benefits of British subjects? See Layard, Richard, “Introduction,” Layard, R., ed. Cost-Benefit Analysis: Selected Readings (London: Penguin Books, 1972).Google Scholar

14 Sugden and Williams, Principles, pp. 232–241.

15 Pearce, D. W. and Nash, C. A., The Social Appraisal of Projects: A Text in Cost-Benefit Analysis (London: MacMillan Press Ltd., 1981), p. 37.Google Scholar

16 Canada, Guide, p. 7.

17 See Mishan, Cost-Benefit Analysis, p. 6; and Canada, Guide, p. 9.

18 Nash, Pearce, and Stanley, “Evaluation,” p. 128.

19 Schrader-Frechette, Kristin S., “Technology Assessment as Applied Philosophy of Science,” Science, Technology and Human Values, Special Issue, Fall 1980, No. 33, pp. 36–37.Google Scholar See Mishan, Cost-Benefit Analysis, p. 356.

20 Schrader-Frechette, “Technology Assessment,” p. 39.

21 Mishan officially defines a person's CV as “a measure of the money transfer necessary, following some economic change, to maintain the individual's welfare at its original level” (Cost-Benefit Analysis, p. 127). This definition presupposes the dubious assumption that every welfare change is equivalent to some transfer of money. But even ignoring this problem, the definition does not ensure that the magnitude of a CV accurately reflects a change in welfare. Income-related differences in the marginal utility of money mean that a greater money transfer will be required at a higher income level than would have been required at a lower income level, to compensate for a given change in welfare.

22 Or because no money transfer would return his welfare to its original level.

23 I assume that “welfare” and “utility” are synonymous.

24 Nash, Pearce, and Stanley, op. cit., p. 127.

25 Pearce and Nash, Social Appraisal, p. 26.

26 ibid., p. 27.

27 Canada, Guides, p. 13.

28 See, e.g., Schrader-Frechette, “Technology, Assessment,” p. 35; Mishan Cost-Benefit Analysis, p. 318; Nash, Pearce, and Stanley, “Evaluation,” p. 126–127.

29 Nash, Pearce, and Stanley, “Evaluation,” p. 126.

30 Nash, Pearce, and Stanley, “Evaluation,” p. 128; Pearce and Nash, Social Appraisal, pp. 31–37.

31 Mishan, Cost-Benefit Analysis, pp. 136, 318.

32 Layard, Readings, p. 42.

33 See Sugden and Williams, Principles, pp. 234–241; and Pearce and Nash, Social Appraisal, pp. 35–37.

34 See Rawls, John, A Theory of Justice (Cambridge, Mass.: Belknap Press of Harvard University Press, 1971).Google Scholar

35 This argument is discussed in detail in my “The Justice and Rational Transparency of Cost-Benefit Analysis,” forthcoming.

36 Pearce and Nash suggest that there is no such thing as CB analysis without an equity weighting system. “A decision to adopt no weighting system is itself equivalent to adopting a particular value judgement, namely, that the existing distribution of income is optimal.” Social Appraisal, (p. 34). I reject this suggestion in “The Justice and Rational Transparency of Cost-Benefit Analysis.”

37 Copp, David “Collective Actions and Secondary Actions,” American Philosophical Quarterly, vol. 16 (1979), pp. 177–186.Google Scholar

38 Sugden and Williams, Principles, pp. 92–93, 235–241. Nash, Pearce, and Stanley call it the “management science approach.” See “Evaluation,” p. 130.

39 Sugden and Williams, Principles, p. 230.

40 ibid., pp. 91, 235, 236, 237.

41 Nash, Pearce, and Stanley, “Evaluation,” p. 130.

42 Sugden and Williams, Principles, pp. 237, 238.

43 ibid., p. 91.

44 See Copp, “Collective Actions and Secondary Actions.”

45 For relevant discussion, see Richard Boyd, “Materialism Without Reductionism: Non-Humean Causation and the Evidence for Physicalism,” forthcoming. See also, Kim, Jaegwon, “Supervenience and Nomological Incommensurables,” American Philosophical Quarterly, vol. 15 (1978), pp. 149–156.Google Scholar

46 Sugden and Williams, Principles, p. 238.

47 ibid., p. 235.

48 Layard, Readings, pp. 9, 11.

49 Mishan, Cost-Benefit Analysis, pp. 310–311.

50 ibid., p. 316.

51 Maclntyre, Alasdair, “Utilitarianism and Cost-Benefit Analysis: An Essay on the Relevance of Moral Philosophy to Bureaucratic Theory,” in Values in the Electric Power Industry, edited by Sayre, K. (Notre Dame, Indiana: Notre Dame University Press, 1977), p. 219.Google Scholar

52 Levi, Isaac, “Conflict and Social Agency,” The Journal of Philosophy, vol. 79 (1982), pp. 231–232.CrossRefGoogle Scholar

53 See ibid., pp. 232–236.

54 Arrow, Kenneth, Social Choice and Individual Values, second edition (New Haven: Yale University Press, 1963).Google Scholar

55 ibid., p. 30.

56 ibid., p. 23.

57 On interpersonal utility comparisons, see: Harsanyi, op. cit., pp. 15–20; Plott, Charles R., “Axiomatic Social Choice Theory: An Overview and Interpretation,” American Journal of Political Science, 1976, 20, pp. 511–596CrossRefGoogle Scholar; Brandt, Richard, A Theory of the Good and the Right (New York: Oxford University Press, 1979)Google Scholar, chapter xiii; and John G. Bennett, “The Problem of Interpersonal Comparisons,” unpublished. On attitudes toward decision procedures, see my “Do Nations Have the Right of Self-Determination?” in French, Stanley G., Philosophers Look at Canadian Confederation (Montreal: Canadian Philosophical Association, 1979), pp. 71–95.Google Scholar

58 We have so far ignored the Scitovsky paradox (Mishan, Cost-Benefit Analysis, pp. 319–321; Pearce and Nash, Appraisal, pp. 28–29). The paradox turns on the twin facts that the introduction of a project can have distributional effects, and that potential Pareto improvements are assessed relative to a given economic state of affairs. Because of these facts, the introduction of a project may achieve a potential Pareto improvement relative to the status quo, while the elimination of the project would achieve a potential Pareto improvement relative to the state of affairs that would result from its introduction. Obviously, in such a case, the economic efficiency of the project, or its cost-benefit effectiveness, relative to the status quo, would not be a sufficient reason for introducting it.

59 Mishan, Cost-Benefit Analysis, p. 156.

60 The problem of how to assign a monetary value to noneconomic costs and benefits in CB analysis is much discussed. The present issue is how to value economic costs and benefits.

61 Canada, Guide, p. 5.

62 ibid., p. 8; see also p. 3.

63 ibid., p. 8.

64 This term, and this response to my position, were suggested by Robert Binkley.

65 This essay was presented to the University of Waterloo Conference on Philosophy, Economics, and Justice, May 21, 1983. Robert Binkely was commentator. I would like to thank him, and the many others who contributed to the discussion, for their helpful remarks. I would also like to thank Edwin Levy for many useful discussions of CB analysis.