This paper provides a brief review of the theory of benefit cost analysis and then discusses proposals by economists calling for developing a new foundation for applied welfare economics. These proposals assume individual choices cannot be reconciled with coherent preferences. As a result, applied welfare economics must consider a different basis for defining the public tradeoffs to be used in project evaluation. This analysis concludes none of the available proposals meets the needs for policy evaluation with benefit cost analysis. The paper also offers a different explanation for the seemingly incoherent preferences implied by some choices. The last part of the paper reports the results of laboratory experiments intended to evaluate whether market outcomes would allow analysts to discriminate among alternative hypothesis for seemingly irrational choices.
- Behavioral economics
- Benefit cost analysis
ASJC Scopus subject areas
- Economics and Econometrics
- Management, Monitoring, Policy and Law