Munich Personal RePEc Archive

Behavioral cost-benefit economics: Toward a new normative approach to policy

Berg, Nathan (2002): Behavioral cost-benefit economics: Toward a new normative approach to policy. Published in: In Kantarelis, D. (ed.), Global Business & Economics Review-Anthology (2002): pp. 132-141.

[img]
Preview
PDF
MPRA_paper_26370.pdf

Download (138kB) | Preview

Abstract

This paper addresses the question of whether the findings of behavioral economics imply that techniques used in cost-benefit analysis should be modified. The findings of behavioral economics considered include the status-quo effect, loss-aversion, overconfidence and hyperbolic discounting. These behavioral phenomena do indeed imply that concepts from cost-benefit analysis such as consumer surplus, the Kaldor-Hicks criterion, shadow-price valuation, and time discounting, need to be modified. The most important modifications follow from the status-quo effect, which provides a new reason to reject policy proposals that yield only small percentage benefits relative to costs.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.