Use of distributional weights in cost–benefit analysis revisited

Abstract

It is nearly 40 years since an earlier survey on the use of distributional weights in Cost-Benefitcost–benefit analysis was first published. Since then, a number of significant contributions have been made in the literature. It is therefore timely to revisit the issue by focusing on the key reasons why distributional weights are so necessary. We present a new justification for using unequal income distributional weights in CBA, and and reaffirm a completely neglected reason for adopting distribution weights. We derive the weights from a formulation of the SWF. We specify the minimum value judgmentsjudgements for the SWF that everyone can agree on who accepts the fundamentals of welfare economics. As many CBA practitioners have ignored using distribution weights, inadequate attention has been given to how they can be estimated. The final objective of this paper is to highlight the main methods for estimating these weights, and and to present applications of these methods.