Nonmarket Economic Valuation and "The Economist’s Fallacy"

Abstract

It is important that noneconomists understand and consider three key points regarding the use of economic cost-benefit analysis. First, economists undertaking applied cost-benefit analyses use expected values by necessity in forward-looking models. Second, economists tally changes in economic value, comparing “with” and “without” investment scenarios, using producer and consumer surplus. Third, marginal changes in the “nonmarket” components of consumer surplus can, and should, be quantified in monetary terms and included in evaluations whenever possible. These three factors highlight the need for multidisciplinary research on complex problems relating public investments to the social, cultural, health, and environmental impacts of those investments.