12 The Benefit-Cost Dilemma

Abstract

Previous speakers have discussed the water resource situation from several perspectives. We have heard about the expected conflicts over water use, we have heard about water quality and quantity issues, and we have heard from a distinguished legal scholar about the institutional environment of water allocation in the West. It is my task to turn your attention to the evaluation process wherein changes in the status quo would be considered. I come with a message quite unlikely to gladden your heart. To be blunt, I come to remind you of the conceptual and empirical difficulties inherent in a benefit-cost analysis. This is not a tirade against agency benefit-cost practices-though I will take a friendly jab from time to time. Rather it is a reminder to economists and politicians that one of our favorite analytic devices is not only theoretically weak, but operationally deficient in several important respects