I would like someone with a background in both economics and EA to offer an articulation of the best defense of using willingness-to-pay in cost-benefit analysis. My experience is that when people raise this objection, many economists (e.g. Robin Hanson) respond by saying that the critics haven’t really understood the methods of economics. But I have never seen a clear explanation of why the objection is mistaken.
I think it is also worth noting that the economists themselves do not appear to apply willingness-to-pay consistently. John Broome (an economist by training) explains (Climate Matters, pp. 144–145):
If people are richer in the future, that means additional commodities bring less benefit on average to future people than the same commodities bring to present people. A kilo of rice in one hundred years will contribute less on average to the well-being of the people who eat it than a kilo contributes today. This is a good reason for discounting future commodities. Ironically, although cost-benefit analysts generally ignore the diminishing marginal benefit of money when they are aggregating value across people at a single date, their main case for discounting future commodities is founded on this diminishing marginal benefit.
Ironically, although cost-benefit analysts generally ignore the diminishing marginal benefit of money when they are aggregating value across people at a single date, their main case for discounting future commodities is founded on this diminishing marginal benefit.
I think the “main” (i.e. econ 101) case for time discounting (for all policy decisions other than determining savings rates) is roughly the one given by Robin here.
I don’t think there is a big incongruity here. Questions about diminishing returns to wealth become relevant when trying to determine what savings rate might be socially optimal. Analogously, questions about diminishing returns to wealth become relevant when we ask about what level of redistribution might be socially optimal, even if most economists would prefer to bracket them for most other policy discussions.
I would like someone with a background in both economics and EA to offer an articulation of the best defense of using willingness-to-pay in cost-benefit analysis. My experience is that when people raise this objection, many economists (e.g. Robin Hanson) respond by saying that the critics haven’t really understood the methods of economics. But I have never seen a clear explanation of why the objection is mistaken.
I think it is also worth noting that the economists themselves do not appear to apply willingness-to-pay consistently. John Broome (an economist by training) explains (Climate Matters, pp. 144–145):
I think the “main” (i.e. econ 101) case for time discounting (for all policy decisions other than determining savings rates) is roughly the one given by Robin here.
I don’t think there is a big incongruity here. Questions about diminishing returns to wealth become relevant when trying to determine what savings rate might be socially optimal. Analogously, questions about diminishing returns to wealth become relevant when we ask about what level of redistribution might be socially optimal, even if most economists would prefer to bracket them for most other policy discussions.