ABSTRACT
So far, this book has devoted considerable attention to principles for measuring and aggregating utility. Some readers may be surprised by this. The title of the book indicates that it is concerned with the environment, not primarily with the distribution of utility or income. Nevertheless, for those who provide environmental policy advice, and even more so for those who receive it, it is important to realize which ethical and political premises the advice is based upon. Whenever there are conflicting interests in society, any decision rule must involve criteria concerning whose views and whose interests should count the most. Environmental CBA is based on the idea that the environment matters to the extent that people are willing to pay for it. In the preceding chapters, I have argued that this particular criterion is not ethically and politically neutral; it is simply one of many possible ways to aggregate individual preferences, and the implicit normative premises embedded in it are quite controversial. Any measurement of the environment’s social value must be based on criteria for who gets a say; this book’s attention to issues like welfare weights is there because I wish to highlight how the results of environmental CBA hinges crucially on its specific choice concerning whose interests and views to emphasize. The message I want the reader to take away from the discussion so far is simply that ranking public projects according to their social preferability is a task inseparably linked to ethical and political judgment. This is true regardless of whether the projects to be evaluated have large or small distributional effects. To decide on ethical and political questions, one needs to discuss ethics and politics. That is not to say that the economist or project analyst is necessarily the one who should be discussing ethics and politics. That might, perhaps, better be left to others. Economists and other project analysts should acknowledge, however, that net aggregate willingness to pay provides no
neutral “economic” answer to which project is best for society as such; it merely provides one of many conceivable ways of systematic evaluation, and other methods will generally reach different conclusions. This holds even if willingness to pay for projects’ consequences is measured comprehensively and accurately. The concepts of utility and welfare are hard to define, and harder to measure. For CBA to generally rank projects in accordance with the normative views of a particular decision-maker, this decision-maker must agree that (i) willingness to pay provides an ordinal measure of individual utility change; (ii) from society’s point of view, an extra dollar is equally important for everyone (i.e., the income distribution is optimal); and (iii) no other consideration than human utility should matter for project evaluation. These requirements can hardly be expected to hold for all individuals participating in a democratic decision-making process. In light of the above problems, what should the analyst do? To what extent is environmental cost-benefit analysis useful even to those who do not accept requirements (i)–(iii)? What type of information should be provided? How do policy-makers use cost-benefit analysis in practice? These are the issues I will turn to in the next chapters.
