For governments who have the option to tax, WTP has obvious relevance as a way of comparing a policy to a benchmark of taxation+redistribution. I tentatively think that an idealized state (representing any kind of combination of its constituents’ interests) ought to use a WTP analysis for almost all of its policy decisions. I wrote some opinionated thoughts here.
It’s less clear if this is relevant for a realistic, state and the discussion becomes more complex. I think it depends on a question like “what is the role of cost-effectiveness analysis in contexts where it is a relatively minor input into decision-making?” I think realistically there will be different kinds of cost-benefit analyses for different purposes. Sometimes WTP will be appropriate but probably not most of the time. When those other analyses depend on welfare, I expect they can often be productively framed as “WTP x (utility/$)” with some reasonable estimate for utility/$. But even that abstraction will often break down in cases where WTP is hard-to-observe or beneficiaries are irrational or whatever.
I think for a philanthropist WTP isn’t compelling as a metric, and should usually be combined with an explicit estimate of (utility/$). I don’t think I’ve seen philanthropists using WTP in this way and certainly wouldn’t expect to see someone suggesting that handing money to rich people is more effective since it can be done with lower overhead.
For governments who have the option to tax, WTP has obvious relevance as a way of comparing a policy to a benchmark of taxation+redistribution. I tentatively think that an idealized state (representing any kind of combination of its constituents’ interests) ought to use a WTP analysis for almost all of its policy decisions. I wrote some opinionated thoughts here.
It’s less clear if this is relevant for a realistic, state and the discussion becomes more complex. I think it depends on a question like “what is the role of cost-effectiveness analysis in contexts where it is a relatively minor input into decision-making?” I think realistically there will be different kinds of cost-benefit analyses for different purposes. Sometimes WTP will be appropriate but probably not most of the time. When those other analyses depend on welfare, I expect they can often be productively framed as “WTP x (utility/$)” with some reasonable estimate for utility/$. But even that abstraction will often break down in cases where WTP is hard-to-observe or beneficiaries are irrational or whatever.
I think for a philanthropist WTP isn’t compelling as a metric, and should usually be combined with an explicit estimate of (utility/$). I don’t think I’ve seen philanthropists using WTP in this way and certainly wouldn’t expect to see someone suggesting that handing money to rich people is more effective since it can be done with lower overhead.