Archive | Cost-Benefit Analysis

Judge Posner on Very Long Prison Sentences

A very interesting concurring opinion yesterday, in United States v. Craig (7th Cir. Dec. 18, 2012); here’s a slightly trimmed version:

[From the panel opinion, which Judge Posner joined.] The defendant pleaded guilty to four counts of producing child pornography. He produced them by photographing his repeated sexual assaults on a girl who was a friend of his daughters and sometimes slept over at his house. He obtained additional pornographic images of her by threatening to kill her unless she photographed herself in sexually explicit poses and emailed him the images. The abuses began when she was 11 years old and continued until she was 14….

[T]he statutory maximum sentence for each count of conviction was 30 years. (It would have been longer had the defendant had previous convictions, but he didn’t.) The judge sentenced him to the 30–year maximum on one count and to concurrent sentences of 20 years on each of the remaining three counts, but he ordered that the set of 20–year sentences be served consecutively to the 30–year sentence, making the total sentence 50 years. The judge was entitled to do this….

[Judge Posner's concurrence:] I write separately merely to remind the district judges of this circuit of the importance of careful consideration of the wisdom of imposing de facto life sentences. If the defendant in this case does not die in the next 50 years he will be 96 years old when released (though “only” 89 or 90 if he receives the maximum good-time credits that he would earn if his behavior in prison proves to be exemplary)…. [I]n all likelihood the defendant will be dead before his prison term expires.

Federal imprisonment is expensive to the government; the average expense of maintaining a federal prisoner for a year is between $25,000 and $30,000,


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Kindler, Gentler Cost-Benefit Analysis

In the new issue of Regulation I review Retaking Rationality: How Cost Benefit Analysis Can Better Protect the Environment and Our Health by NYU’s Richard Revesz and Michael Livermore, a progressive defense of cost-benefit analysis, albeit reformed to make it more regulation-friendly.  My review is available here (beginning on the third page of the PDF).  Here is how I conclude:

Revesz and Livermore claim their reformswould yield “an administrative state that is more efficient and fair, and deliversmore environmental, health, and safety protection for less cost.” Who could be against that? They argue that “the most appropriate and natural role for cost-benefit analysis is to help find the regulatory sweet spot, the optimal point that is between not enough and too much.” Yet at other places, it is unclear whether their aimismore “neutral” regulatory analysis or simply more regulation. While they often stress the importance of “neutral” analysis, they also presume such analysis will produce particular results, and trumpet this claim to their presumably progressive audience.

They are correct to highlight the need to consider the distributional implications of regulatory decisions. But they ignore the broader ethical questions about when government intervention in private economic decisions is appropriate. Cost-benefit analysis can inform regulatory policy, but it is
insufficient to determine when regulation is itself desirable. It is a powerful tool that can enhance the understanding of a regulation’s likely effects, but it is also prone to misuse. It can provide a veneer of technical precisionto regulatory judgments and augment the political case for action.

As the authors show, pro-regulatory interests could have much to gain by deploying a regulation-friendly cost-benefit analysis. Yet this will not make it any more “neutral,” nor will it ensure that better regulatory policies result.


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Cost-Benefit Analysis and Airline Security – A Query about Method

In the various discussions about airport and airline security here at VC, a common response in the comments is something like this one (some version of this pops up from many commenters, and I’m just pulling up the most convenient example):

With the current procedures, flying is one of the safest things we do. Even with an occasional successful bombing, we would still be way below any level of acceptable risk. If we want to curtail civil liberties to save the lives of people flying, we should start by screening folks we allow to drive to the airport, you’re much more likely to get killed doing that.

It is a costs versus benefits argument (actually a couple of slightly different ones) pitting the costs of a successful bombing and “acceptable” risk, with a suggestion that an appropriate metric, by implication of preferring to regulate it instead, would be the drive to the airport.  It is a theme of much of the skepticism about US counterterrorism policies, a skepticism rooted in cost benefit analysis, but perhaps more accurately framed as skepticism about the proper things to be compared – what kinds of costs and what kinds of benefits?  Matthew Yglesias perhaps exemplifies the skeptical view following the Christmas attack, in a post titled “Not So Scary ‘Terror’”:

Obviously, people shouldn’t be lighting anything on fire inside airplanes. That said, all the big Christmas airline incident really shows to me is how little punch our dread terrorist adversaries really pack. Once again, this seems like a pretty unserious plot. And even if you did manage to blow up an airplane in mid-air, that would be both a very serious crime and a great tragedy, but hardly a first-order national security threat. [Edited out Peter King quote.] …

Ultimately, it does no favors to


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Jim Manzi, ‘Keeping America’s Edge’

I am going into isolation for a bit to rewrite the last chapter in my UN book, “Returning to Earth: When and How the United States Should Engage, and Not Engage, with the United Nations” – a chapter on the end of the human rights era at the UN.  But I wanted to wish everyone a happy new year.  And thank people for the excellent comments on cost-benefit analysis and the “line in the sand” question – please keep any comments coming in, particularly as relevant to the issue of how CBA deals, or does not deal, with deliberately arbitrary lines, in a form of analysis arising out of marginal incrementalism.   (I am less interested in debates over particular issues to which CBA might be applied; I’m trying to understand it as a conceptual form and, if you like, something of its intellectual history and pedigree.)  And, finally, to commend to you this essay by Jim Manzi, “Keeping America’s Edge,” at National Affairs journal – curious to return and see what people thought of it. [...]

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How Does Cost-Benefit Analysis Draw Lines in the Sand?

Many of us who write, read, and comment on this blog work frequently with cost-benefit analysis, perhaps typically through discipline specific tools, whether in economics or finance or business or engineering or other disciplines.  In my case, in my day job I’m mostly an international business-finance professor who uses the typical, and really not very sophisticated, tools of net present value, discounted cash flow, and so on, in my day to day work.  I apply these ideas sometimes in my work in public law, but mostly these are, in my case, workaday tools in relatively narrow business contexts.

I understand CBA, that is, at the highly discipline-specific level of standard private firm decision-making.  And I think, after a fair amount of philosophical study, I understand it at the most abstract level as consequentialism, and its many philosophical arguments.  But oddly, I don’t think – despite reading a couple of textbooks and much besides on public (rather than private firm) finance theory – I really understand the “mid-tier” of cost-benefit analysis applied to public policy problems, in the way that, for example, Cass Sunstein writes about pretty much everything as a cost-benefit problem.  Yet this is where CBA seems to be most offered as a policy template – and yet which puzzles me in many ways.

The puzzles include, for example, how one compares different values that seem to me fundamentally incommensurable.  I am currently grappling with the question in precisely this “mid-tier” public policy context of proportionality in the law and ethics of war.  Among other things, it does not seem to be very much of a problem when I am working in private firm CBA, such as NPV.  Why not?  Mostly because private firm decision-making tends, as a matter of process, to force firms to compare projects [...]

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