White-hat CBA hacking – 3 new hacks that skew benefit–cost ratios
By Dave Heatley1 & Bronwyn Howell2
Presented at the New Zealand Association of Economists’ annual conference, 28-30 June 2023.
Abstract
‘p-hacking’ – the misuse of data analysis to find patterns in data that can be presented as statistically significant when in fact there is no real underlying effect – has received much recent attention in economics. Cost–benefit analysis (CBA) is also susceptible to various ‘hacks’, intentional or otherwise. In the spirit of ‘white hat’ cyber-hackers, we describe three CBA hacks.
Over-inflating co-benefits, by using the avoided social cost of abatement instead of the lowest available cost of abatement.
Conflating marginal vs. average costs and benefits, particularly for projects large enough to shift prices, or in the presence of alternative or contemporaneous projects that affect prices.
Multiple counting of completion benefits in staged projects.
It is important that readers and recipients of CBAs understand and can identify such hacks, so as not to be misled by apparently good (or bad) headline benefit–cost ratios.
Draft paper — comments invited
White Hat Cba Hacking (PDF) 030124
Dave Heatley, Director, Sawtooth Economics Limited, New Zealand. dave@sawtootheconomics.com
Bronwyn Howell, Senior Lecturer, Wellington School of Business and Government, Victoria University of Wellington, New Zealand; Senior Research Associate, Public Utilities Research Center, Warrington College of Business Administration, University of Florida, USA; Nonresident Senior Fellow, American Enterprise Institute, Washington DC, USA; Research Principal, Institute for Technology and Network Economics, New Zealand & South Africa. Bronwyn.Howell@vuw.ac.nz