Distributionally weighted cost-benefit analysis: Welfare economics meets organizational design

Abstract

Approaches to cost-benefit analysis (CBA) derived from social welfare maximization conclude that it ideally should include distributional weights. Agencies using CBA, however, do not maximize welfare. They perform specialized tasks. Approaches that assume agencies should maximize welfare cannot be used to determine the design of those tasks. This article considers the design of CBA, including the pursuit of distributional goals by mapping optimal distributive systems to tasks performed by specialized agencies. It concludes that regulatory agencies using CBA cannot make distributional adjustments consistent with desirable distributive policies. Therefore, CBA should not include distributive weights.