ABSTRACT
Neither cost-benefit analysis nor any other method can provide ethically neutral measures of how important an environmental change is for society. This is true even if we consider only small changes that do not substantially affect the income distribution or relative prices. How important something is for society is, essentially, a normative question. Normative answers require normative premises. An analysis based on specific normative premises cannot, at the same time, be ethically neutral. Still, policy choices must, of course, be made. To do that, one needs to enter into ethical and political discussions. Ethics and politics are important and deserve serious, competent, and thoughtful attention. It is not obvious, however, that the person best suited to take care of those considerations is the project analyst. In a democracy, there are usually others who have been elected by voters to do precisely that. It is my belief that economic analysis can be more useful if, rather than explicitly ranking projects according to their social desirability, it is limited to the task of being systematically descriptive. The central question for the analyst is then not which project is best, but rather what information is most important for decision-makers. Will the environment be forgotten unless one attaches a price tag to it? That is, of course, possible. If one really believes that monetary valuation increases the probability that decision-makers will take environmental considerations into account, this is a strong argument for monetary valuation. Nevertheless, this reasoning may be overly optimistic about the influence of such price tags. If decisions were made solely on the basis of aggregate willingness to pay as estimated in cost-benefit analysis, placing price tags on the environment would be crucially important. But there is little evidence that decisions are made mainly on the basis of aggregate willingness to pay. And after all, why should a price tag be expected to matter if no one has to pay the price written on it?
