Sunstein Will Be Dancing, But Should He?

• Author: Henderson, David R.
• Position: The Cost-Benefit Revolution - Book review

The Cost-Benefit Revolution

By Cass R. Sunstein

266 pp.; MIT Press, 2018

In his preface to The Cost-Benefit Revolution, Harvard law professor Cass Sunstein writes something that readers may not expect:

To date, the cost-benefit revolution has had three defining moments. They stem from the work of presidents Ronald Reagan, Bill Clinton, and Barack Obama. An approving nod to a Republican president may seem surprising for the Democrat-allied Sunstein, but he credits all three presidents for advancing the use of cost-benefit analysis in the executive branch of the federal government. He gives a nice history of that revolution, starting with Reagan.

From 2009 to 2012, Sunstein headed the Obama administration's Office of Information and Regulatory Affairs (OIRA), the part of the executive branch that enforces the requirement for cost-benefit analysis of major government regulations. Seeing government up close often makes analytic people cynical, but that hasn't been the case with Sunstein. He emerged from his almost four-year stint in Washington as a strong believer in the power of cost-benefit analysis to lead not only to answers but also to good policy outcomes. In this book, he lays out why and concludes that the cost-benefit revolution "may well turn out to be a transition to something far better, focused more directly on the measurement of human welfare and enlisting unimaginably ambitious strategies to capture and improve the real-world effects of public-sector initiatives." When that happens, he closes, "There will be dancing at the revolution, and I'm coming."

Unfortunately, he doesn't fully make his case. To be sure, he makes a strong argument that cost-benefit analysis has the power to be good analysis. He also shows cases in which good analysis overcame political pressure. But for someone who was in his job when "four thousand regulations were under discussion," he relates surprisingly little about those discussions when, to make his case, he needed to provide more than just some details about a handful of regulations. He also goes too easy on heads of government agencies, not acknowledging their evident bias. He even makes a simple but telling error in one of his examples of cost-benefit analysis, using an annual figure where he should have used a present value.

Also, as noted above, he wants cost-benefit analysis to evolve into welfare analysis. But even though he discusses welfare often in the book, he never gives readers a clear idea what it is.

To his credit, he deals head-on with some of the major pitfalls in cost-benefit analysis. He devotes a whole chapter, for example, to Friedrich Hayek's "knowledge problem," concerning the difficulty governments have in gathering and employing important information that exists in decentralized form in millions of minds. Sunstein seems to think, though, that he has answered Hayek's objection. I think he hasn't. Also to his credit, even though I think that his reasoning falls short, he employs cost-benefit analysis in ways that few other advocates dare, including in evaluating the tradeoff between national security policy and civil liberties such as privacy and freedom of speech.

Respecting people's will/ The book has many strengths. The best chapter by far is Chapter 3, titled "Willingness to Pay and the Value of Life." In it, Sunstein defends the view that measuring people's willingness to pay (WTP) for...