The False Promise of Cost-Benefit Analysis
COLLEGE PARK, MARYLAND – Can we really use data to overcome the left/right ideological divide and identify policies that, as Bjørn Lomborg puts it, “would have the biggest impact on society?” Lomborg is a leading advocate of cost-benefit analysis (CBA) as the best way to choose between policy options. He is not alone in this belief, though he is perhaps extreme in his faith in CBA.
Lomborg is the Director of the Copenhagen Consensus Center (CCC), and both there and in his regular commentaries, including for Project Syndicate, he reports on the results of CBA to recommend development priorities. Over the years, Lomborg has hired more than 300 economists, including seven Nobel laureates, to carry out these economic evaluations. Unfortunately, these – indeed, all – CBA results are infused with the ideology of those funding and conducting them – and thus offer very limited information for public policy choice.
CBA, and its common use in studies of the rate of return on investment, originated in the United States in the 1930s to assess water resource projects. But, while the general methodology has become part of orthodox economics, it is mostly confined to academic research. Institutions like the World Bank use it to make decisions, but governments rarely do (and most often to offer a post hoc rationale for some policy choice).