Introduction

Aim of this book In this book I discuss ethical and political controversies related to environmental cost-benefit analysis: why controversies must be expected, why these controversies need to be taken seriously, and how they can be handled in practice. While my focus is on evaluation of projects with environmental impacts, substantial parts of the discussion are relevant for other projects as well. Most textbooks in cost-benefit analysis assume, implicitly or explicitly, that the purpose of the analysis is to rank projects according to their social preferability. My starting point is different. I assume, instead, that the primary role of an economic project analysis is to provide factual input to a democratic decision-making process. I will assume that several decisionmakers, whose ethical and/or political views differ, take part in this process. Consequently, the purpose of the analysis is not to determine one final ranking of projects, but rather to enable each decision-maker to arrive at a well-founded ranking in accordance with her own normative views. As it turns out, the latter purpose faces the analyst with quite different challenges from the former. It is thus important to be aware of the distinction between these two purposes of project analysis, and to adjust one’s methodological choices, interpretation of results, and form of presentation accordingly. A main reason why a project analysis should be approached differently depending on its purpose has to do with the fundamental distinction between normative and positive analysis. Ranking projects according to their social desirability is an explicitly normative task. Pure logic demands that normative conclusions must be based on normative premises. Thus, no analysis performing this task can claim objectivity. If one aims at providing background information to a democratic process, however, the analysis itself is not necessarily normative. With this purpose, the concern

for objectivity may indeed be crucial: If a decision-maker finds that the analysis is based on normative views she does not share, she will (and should) be critical of its results. If, moreover, she does not know how to adjust results in order to account for the normative disagreement, she may have to disregard the analysis altogether. Consequently, even if decisionmakers have the best intentions, the analysis may end up having little or no influence. One problem with applied cost-benefit analysis is precisely that it can be hard or even impossible for users to adjust its results to account for normative disagreement. This problem might have been a minor one if the normative assumptions employed were uncontroversial; however, as I will discuss below, this cannot be expected to be the case. On the other hand, no analysis can be perfectly objective. There are many reasons for this, but one is the need for aggregation and simplification. Decision-makers with different normative views typically require different information to arrive at their own well-founded ranking of projects. Thus, if normative views differ, and each decision-maker is to be given the same information, the total amount of information may simply become too extensive. Busy decision-makers do not mainly need details; they need overview and understanding. In practice, there will be a trade-off between objectivity – requiring possibly very disaggregated information – and simplicity and brevity, requiring aggregation. The emphasis placed on each of these concerns should depend on the purpose of the analysis. When making these trade-offs, the analyst will to a considerable extent need to resort to his own subjective judgment. In a normative analysis, such judgment is facilitated by the possibility of resorting to the normative premises already chosen for the analysis. In a positive analysis, the required judgment on the analyst’s part may be more difficult – which information to report or suppress, the level of aggregation, whether to use possibly controversial indicators, and, if so, which. I hope this book, by pointing out and perhaps clarifying some of the factors to be considered, can be of assistance when making those judgments. In applied project analysis, the most pressing difficulties may well be related to basic issues such as factual project description, clarification of projects’ purpose, or defining the base case scenario (the “status quo” situation to compare projects with). These matters are not, however, my concern here, and I will thus simply assume that they have already been sorted out. Instead, I will concentrate my discussion on issues of valuation, aggregation, interpretation, and presentation; for example how far one should go in the direction of valuing all consequences in monetary terms. Several countries have guidelines requiring cost-benefit analysis or similar analyses for new project or reform proposals. Nevertheless, some

research has indicated that the economic analysis tends to be poorly integrated in the political decision-making process, and that politicians hardly, or to a rather limited extent, prioritize in accordance with the recommendations from these analyses.1 While this might of course be driven by policy-makers who care less about social welfare than re-election and personal power, it could also possibly be related to the problem pointed out above: even with the best intentions on policy-makers’ part, analyses based on controversial normative premises may be poorly suited as input into a democratic decision-making process. Since it may be interesting for the reader to hear what policy-makers themselves have to say about this, I have included here some results from an interview survey among members of the Norwegian parliament concerning their use of and attitudes to costbenefit analysis.2