Introduction: benefit-cost analysis and the environment in developing countries

Abstract

In one sense, everyone making a decision of any consequence uses something very like benefit-cost analysis. That is, they weigh up the pros and cons of the options confronting them and decide between them accordingly. Benefit-cost analysis is merely one systematic way of evaluating the economically relevant pros and cons of various options. The authors of the project appraisal manuals of the early 1970s (Mishan, 1971; Dasgupta et al., 1972; Pearce, 1972; Little and Mirrlees, 1974) were interested in establishing a set of rules that might ensure that the results of distinct social investment decisions would be efficient (or at least consistent). On the surface, the paper by Arrow et al. (1996) that is the focus of this forum merely argues for an extension of benefit-cost rules to an area where, as David Pearce points out in his commentary, policy-making tends to be dominated by hasty, ill-conceived, ad hoc responses to the pressures of the moment. The paper argues that environmental, health and safety regulations in the US could and should be informed by an analysis of their economically relevant costs and benefits.