When is quantifying benefits a bad thing….

A recent article in the New York Times, In New Calculus on Smoking, It’s Health Gained vs. Pleasure Lost, describes the economic analysis being done by the US Food and Drug Administration to support tobacco regulations.  According to the Times, the economic analysis includes a “happiness measure”— the lost pleasure of smoking.  In the analysis, the value of lost happiness offsets much of the costs of smoking (cost of illness, for example), with the implication that tobacco regulation looks much less attractive.

Those critical of Benefit-Cost Analysis (BCA) can point to this as yet another example of economic analysis coming up with the “wrong” result, and the evils of using BCA. But the problem is not that economic analysis of regulations  is inherently bad, but rather that economics-poorly-done does not support good decision making.

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Take a Poll: How do you think we should make decisions about global climate change?

Yesterday’s post on Paul Krugman’s review of The Climate Casino, by Bill Nordhaus, raised the question of the usefulness of benefit-cost analysis for assessing the global costs and benefits of climate change.  Most–but not all–economists tacitly accept this approach.

What about you?  If not benefit-cost analysis, then what approach do you think we should use?

Take a poll and record how you would like to decide “how much climate change is enough?” (more…)

Paul Krugman on Bill Nordhaus and Climate Change: Insights not Answers

by Fran Sussman

Paul Krugman’s review of Bill Nordhaus’s recent book, The Climate Casino: Risk, Uncertainty, and Economics for a Warming World, is thoughtful and informative.  But it unintentionally raises some difficult questions about the role of benefit-cost analysis in assessing the consequences of climate policy, and whether focusing on this type of analysis draws resources and attention away from other, more important topics in economics.

Benefit-cost analysis of global climate change is fundamentally either an academic exercise or one intended to shape public opinion.  The Climate Casino is a little of both. (more…)

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