The economic welfare implications of two positive economic models that forecast equally well may be vastly different.Introduction to Benefit-Cost AnalysisHowever, it is important to understand the role of the economist in the policy making decision process. Welfare economists work in the realm of normative economics which includes value judgments. Is it the economist’s responsibility to talk about the desirability of a given policy change? While one could argue that the role of the economist is only to calculate the impacts and allow decision-maker to decide whether those impacts are best for society were not. On the other hand, because benefit-cost analysis does include the explicit calculation of which groups gain and which lose from a policy action and this has welfare implications for society, pointing out the economic implication of these policy actions as they affect individual groups in society may provide useful information to the policy makers are elected or hired to make decisions. While benefit-cost practitioners do tend to report the welfare implications of policy changes and this may affect decisions, he or she must remember that these implications do have the value judgements embedded in them. Furthermore, even when operating in the realm of pure positive economics, the economic welfare implications of two positive economic models that forecast equally well may be vastly different.
Slide 32 Economic EfficiencyIntroduction to Benefit-Cost AnalysisIntroduction to Benefit-Cost AnalysisNow we will turn our attention to the question of how economist measure economic efficiency.
Slide 33 Prudential Algebra” of Benjamin FranklinIntroduction to Benefit-Cost AnalysisJoseph Priestley (1733-1804)“The History of Electricity” (1767)Isolated and characterized eight gases in air, including oxygen (1774).Benjamin Franklin (1706-1790)Lots of science, politics, writingIn a previous section we described the Department of Justice’s benefit-cost analysis for the Prison Rape Elimination Act and the concern that some had about this analysis. The interesting thing is that not only is the Department of Justice’s analysis nothing out of the ordinary for welfare economists, but the methods that it used are quite old and well established. As far back as 1772, we find a letter from Benjamin Franklin to Josesph Priestly which, effectively, lays out the method for benefit-cost analysis. Joseph Priestly, a well-known chemist of the time and famous for discovering oxygen, among other things, and he had written Benjamin Franklin about a problem.