Willingness-to-pay (WTP) values and willingness-to-accept (WTA) values have received considerable attention, but the role of reference-dependence effects is more diverse. Policies involving cost and risk may have reference point effects with respect to both cost and risk, leading to four potential valuation measures. Experimental evidence for water quality policies suggests that the cost reference effects are particularly influential in that context. There is, however, no evidence of significant reference effects for labor market estimates of the value of a statistical life. Sound application of benefit values other than WTP measures requires pertinent empirical evidence and an assessment of the underlying rationality of the determinants of the reference-dependence effects.

Differences between estimated willingness to accept compensation (WTA) and willingness to pay (WTP) that are larger than can be explained by standard economic theory raise questions about which measures should be used for benefit–cost analysis (BCA). These differences do not create a new problem but accentuate an existing one: the fact that the Kaldor–Hicks compensation test is ambiguous when its two components conflict. This conflict is more likely when the difference between WTA and WTP measures of a change is large. In many cases, the same individuals receive benefits and incur costs from a policy change and their preferences for the policy cannot depend on whether they ask whether their WTP for the benefit exceeds the cost they will incur or their WTA to forgo the benefit exceeds the cost they will save. In cases where benefits and costs are incurred by different people, it seems more useful to evaluate the fundamental question – whether the benefits to some justify the harms to others – than to obscure this question through a technical debate about valuation measures.

Applying benefit-cost analysis in the White House regulatory oversight process served as a basic mission of the Council on Wage and Price Stability (CWPS) during its seven-year lifespan (1974–1981). This paper reviews that CWPS experience, which involved filing comments in over 300 proceedings at more than 25 federal regulatory agencies. The paper draws on those CWPS public comments (filings), identifying persistent and pervasive deficiencies in the economic analysis regulators then and now often use as support for new regulation. CWPS filings fostered greater acceptance of benefit-cost analysis in regulatory decisions; such analysis is now required by executive order.

Recent federal regulations require new light-duty vehicles to have lower greenhouse gas emissions and better fuel economy. This paper presents the reasoning used by the U.S. Environmental Protection Agency (EPA) in its benefit-cost analysis of the standards. According to EPA, many available technologies could achieve these goals without affecting other vehicle qualities, and fuel savings would pay for the increased technology costs with short payback periods. This lack of market adoption of cost-effective energy-saving technologies has been termed the energy efficiency gap or energy efficiency paradox. It suggests that either there are additional costs, such as changes in vehicle qualities, not considered in cost estimates, or markets for energy-saving technologies are not achieving all cost-effective savings. EPA argued that, even if consumers do not accurately consider expected future fuel savings when buying new vehicles, consumers are projected to receive those savings; the latter measure should reflect the impacts of the rule on fuel expenditures. For the cost side, EPA used a measure of technology costs required to meet the standards while maintaining baseline (2008) vehicle attributes. Estimates of how these costs would be affected by changes in vehicle attributes were not included.

The results of the vast array of willingness to accept compensation/ willingness to pay (WTA/WTP) disparity studies provide strong evidence that people value many losses and reductions of losses, more, and often much more, than otherwise commensurate gains or foregoing of gains. These findings also make it clear that people commonly value many changes not as final states as standard theory assumes, but as positive or negative changes relative to a neutral reference state. Consequently, not only are losses to be most accurately assessed with the WTA measure, but most positive changes that reduce losses are as well. Current practice, which rarely takes such reference dependence into account, is therefore likely to substantially understate the value and importance of projects, policies, and programs that reduce losses. Failing to take the possibilities of valuation disparities into account also appears to undermine other kinds of analyses as well, including, for example, the estimation of elasticities and setting effective levels of Pigouvian taxes.