Sensitivity analysis in benefit-cost analysis: a key to increased use and acceptance

Sensitivity analysis (SA) is often absent, and when present, it is under-utilized. SA can do more than illustrate the implications of uncertainty. SA can make a Benefit-Cost Analysis (BCA) much more informative, can discourage abuse, and can make inadvertent bias more transparent. SA makes it harder for public officials to ignore BCAs that get in the way of special interest politics. Those features are especially important for environmental policymaking. SA could help change the environmentalist attitude about BCA that has produced outright prohibitions of economic analyses such as can be found in the Water Pollution Control Act, the Clean Air Act, and the Endangered Species Act. SA is a non-confrontational way to handle controversy about key assumptions, calculation methods, and projected data. SA can make public officials more accountable, and SA makes their decision making criteria more transparent. SA lengthens the shelf-life of a BCA, and within a draft BCA, SA can help allocate research resources and narrow the range of relevant alternatives. A case study of a proposed reservoir illustrates many of the benefits of using SA more extensively.
I. INTRODUCTION Nearly everyone generally agrees that decision making is a comparison of benefits and costs. Beyond the abstract, there is much controversy, especially about giving benefit-cost analysis (BCA) a [...]