ABSTRACT
The interaction between legislatures and administrative agencies as a principal-agent relationship with uncertain outcome, this chapter considers something that those in the academic world are fond of dispensing—advice. When advice is offered or sought, several decision frameworks exist for organizing and presenting this advice, including benefit-cost analysis. These frameworks involve the collection, analysis, and presentation of information for evaluation of programs or policies. The benefit-cost framework relies heavily on theory to identify effects. It is also comprehensive in assessing the scope of effects and demanding in terms of quantitative measurement. Benefits may also exist in situations in which the cost per unit of output increases as more output is produced. Benefits can also be evaluated if markets are not perfectly competitive. Two major sources of market imperfections are the creation of externalities and the use of market power to restrict supply, drive up price, and create excess profit.
