Strategies in relation to complexities: From neoclassical Cost-Benefit Analysis to Positional Analysis

Please cite the paper as:
Peter Söderbaum, (2017), Strategies in relation to complexities: From neoclassical Cost-Benefit Analysis to Positional Analysis, World Economics Association (WEA) Conferences, No. 2 2017, Economic Philosophy: Complexities in Economics, 2nd October to 30th November 2017

Abstract

In this essay neoclassical Cost-Benefit Analysis (CBA) is criticized as beinng too simplistic and also too specific in ideological terms. Positional Analysis (PA) is advocated as an alternative based on a definition of economics in terms of multidimensional analysis and democracy. Non-monetary impacts are regarded as being as ’economic’ as monetary ones and decision-making is seen as a multiple stage proces where issues of inertia, path dependence and irreversibility can be considered. While PA is still based on some simplifications, it is argued that the approach is closer to the complexities of the real world.

Sustainable Development is presented as a multidimensional issue where mainstream neoclassical theory has failed. A degree of pluralism in economics is needed to overcome some of the present unsustainable trends. As an example CBA-analysts cannot dictate correct values for assessments in a democratic society. In relation to decision-making, different and competing ideological orientations have to be considered.

Keywords: , , , , , , , ,

4 comment

  • David P Ellerman says:

    Prof. Soderbaum seems unaware that a logical-methodological fallacy was discovered several years ago in the Kaldor-Hicks Principle (that vitiates its usual application) which is usually taken as the economic basis for cost-benefit analysis.
    Ellerman, David. 2009. “Numeraire Illusion: The Final Demise of the Kaldor-Hicks Principle.” In Theoretical Foundations of Law and Economics, edited by Mark D. White, 96–118. New York: Cambridge University Press.
    Ellerman, David. 2014. “On a Fallacy in the Kaldor-Hicks Efficiency-Equity Analysis.” Constitutional Political Economy 25 (2 June): 125–36.
    Or my webset: http://www.ellerman.org

  • Marcus Castro says:

    Very interesting. Apparently chimes with LAEP — see pp. 41 et seq here: https://www.researchgate.net/publication/280977715_New_Legal_Approaches_to_Policy_Reform_in_Brazil

  • Mamerto Reyes Hernández says:

    Muy buen artículo. Aunque el autor no cita a John R. Commons, su posición me parece estar muy emparentada con el enfoque de análisis institucional de Commons.

    Very good paper. Although the author does not cite John R. Commons, his position seems to me to be very closely related to Commons’s institutional analysis approach..

  • Ralph W. Huenemann says:

    What is meant by “neoclassical CBA” requires clarification. The purest single-criterion version of CBA (an attempt to choose public investments so as to increase the future stream of national income, as set out for example by Arnold Harberger in his essay “Three Basic Postulates …” in the 1971 JEL, famous for the assertion that “a dollar is a dollar is a dollar”) is a straw man. Even Harberger has abandoned this version (see A. Harberger, “Economic Project Evaluation, Part 1: Some Lessons for the 1990s,” The Canadian Journal of Program Evaluation, 1997). As currently practiced, CBA generally tries to incorporate income distribution and environmental issues. It can certainly be argued that CBA doesn’t do this very well. At the applied level, see, for example, Martin Ravallion, “Geographic Inequity in a Decentralized Anti-Poverty Program: A Case Study of China,” World Bank Working Paper 4303, 2007, and IEG, “Cost-Benefit Analysis in World Bank Projects,” The World Bank, 2010. At the abstract analytical level, there is the extensive literature on MCDM (multi-criteria decision methods), of which CBA practicioners seem barely aware. CBA as currently practiced certainly deserves to be criticized. But characterizing CBA as “technocrats dictating to politicians/decisionmakers” is not accurate. I am strongly in favour of democracy, but I would nevertheless argue that the failings of democracy need to be balanced against the failings of CBA. The mechanisms by which the public can participate in government investment decisions (referenda, surveys, elections) have significant weaknesses of their own.

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