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.