The Use of Distributional Weights in Benefit-Cost Analysis: Insights from Welfare Economics

This article examines how distributional weights can be introduced into benefit-cost analysis (BCA) by using insights from recent developments in welfare economics, in particular the theory of fair social allocation and happiness studies. We argue that it is easier than commonly believed to design weights that embody the Paretian and equity properties of a well-crafted social welfare function. However, the informational requirements for such weights suggest that it may be helpful to examine the potential for simpler weights (e.g., based on simple objective indexes of well-being) to provide reasonable approximations of ideal weights for use in BCA. © The Author 2016. Published by Oxford University Press on behalf of the Association of Environmental and Resource Economists. All rights reserved.