Benefit-Cost Analysis and Emerging Technologies

Abstract

Emerging technologies are, by definition, full of surprises: developments that we cannot fully anticipate and that might have some bad outcomes as well as good ones. This presents a challenge for anyone trying to make forward-looking policy decisions, including those who apply benefit-cost analysis. BCA is now widely known and used, but it is also widely misunderstood-by many of its advocates as well as its detractors. In this essay, I will begin by examining some of the strengths and weaknesses of BCA as a normative science. Yes, "normative science" is an oxymoron, and the incongruity it speaks to is a source of much of the controversy; BCA is an imperfect answer, but often the best available answer, to the question of how a society should go about making collective but not unanimous choices. I also want to take a hard look at the question of what we are evaluating. BCA is designed to weigh government actions, to see whether they are in the public interest; it is not designed to evaluate private actions. But if the government action is to approve a private action that otherwise would be prohibited, then the BCA inevitably must evaluate the latter. From the perspective of a government regulator, it is very tempting to shift the burden of proof onto private innovators-to obligate them to seek permission to proceed, and to demonstrate that their proposed actions have acceptable risks and will produce a net social benefit. But such burden-shifting is not merely an administrative convenience; it has serious economic consequences that need to be examined.