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Cost-Benefit Analysis of Difficult Decisions

Erik Schokkaert
1.

Some Examples of Difficult Decisions

Policies concerning nature and the environment continually confront governments with difficult decisions. Beginning with a few examples might help make this evident.1 Is the establishment of a high-speed rail network across Belgium a desirable thing? If so, then what would be the best route for it to follow? Should the train be restricted to rural areas to spare inhabited urban zones or vice versa? What could be considered reasonable costs for building tunnels and bridges in order to divert the train through less vulnerable regions? Or we might consider another example, perhaps more extreme but certainly just as realistic. Research has shown that the concentration of lead in the atmosphere surrounding a factory, which employs a couple of thousand people and manufactures non-ferrous metals, has reached dangerously high levels. As a result, the health of the children in the residential areas around the factory is under serious threat. The costs of doing something about the pollution are so high that they would render the business no longer viable. Should the factory be closed down? Would the children be more healthy if the factory were closed and their parents had no jobs? Lastly, we might ponder a more complex example outside of Europe. The Hydro-Qubec company in Canada produces hydro-electricity by way of a dam on the La Grande river. While hydro-electricity is a pure source of energy, the construction of the dam needed to produce it caused harm to important nature reserves and the taiga or natural forest regions. Traditionally these territories have been the habitat of the Inuit and Cree Indians and this project has been, to a large extent, responsible for the destruction of their traditional culture. Furthermore, it later turned out that the water of the artificial lake created by the

dam was contaminated with mercury and the fish caught were not suitable for human consumption. All things considered, was the construction of the dam a good or positive thing? Such examples typify the kind of problem I would like to discuss in this paper: political decisions in the economic sphere which have a broad social impact. The problems involved here are always difficult problems. They are difficult in two ways. In the first place there is often a lack of information on the potential range or scope of such decisions. How serious is the noise pollution from a high-speed train? What will the precise consequences be for the ecological stability of the countryside? What positive effects will the fact that some people will now travel by train instead of by car or plane have on the environment? How many people are likely to make that change? What are the precise consequences of lead poisoning? Is the mercury contamination of the reservoir permanent or temporary? Are there technologically superior methods for manufacturing electricity? Scientific research should, at least in principle, be able to answer such questions. Secondly, and more importantly, however, we are dealing here with difficult ethical dilemmas. What is the relative (ethical) importance of the protection of the countryside vis--vis the respect due to the inhabitants of residential areas? Are the negative aspects of both offset by the increase in mobility and reduced car traffic (and consequent reduction in air pollution, road congestion and accidents) created by the introduction of high-speed trains? What relative value can be ascribed to economic profit and job creation if the health of children is at stake? Is the destruction of traditional cultures offset by the advantages of pure energy? Does the protection of such cultures have any meaning? In this second kind of difficulty we have obviously turned from questions

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concerning the positive sciences to questions concerning values and the choices based upon them. In this paper, I would like to further examine the relationship between these two kinds of question. What can the contribution of the positive sciences be in the making of such social choices? In order to give some structure to this discussion, section 1 will begin with a description of the most ambitious project available within the social sciences for answering such questions: socioeconomic cost-benefit analysis (SCBA). It is not my intention to attempt to deal with the many unanswered methodological questions surrounding SCBA. Rather, this technique will be used as a point of reference in order to raise more fundamental questions concerning the relationship between ethics and economic calculus. Section 2 will describe what a perfect SCBA might look like. This provides an opportunity to clear away a number of misunderstandings in order that the really important questions can be exposed and confronted. Section 3 will offer a concise examination of the possibilities and limitations of consequentialism. Section 4 will explore how scientific analyses can be integrated into the political decision-making process. Section 5 will discuss the basic assumptions peculiar to SCBA. And finally, section 6 will offer some concluding remarks.
2.

Socio-Economic Cost-Benefit Analysis (SCBA): Principle and Practice

The basic principle of SCBA is very simple. Examine all the effects of a decision and give them a monetary value. Social benefits are given a positive value and social costs a negative value. Then add up the monetary values: if the end result appears positive, then undertaking the project in question would be socially desirable; if negative, then it would be socially undesirable. The examples described in the introduction were presented in such a manner in order to make it

immediately clear how SCBA operates. Take the high-speed train, for example. On the costs side there is the financial outlay entailed in constructing tracks and running the trains, but there are also factors such as noise pollution and damage to the countryside to be considered. On the benefits side there are the advantages of faster transportation and decreased traffic congestion on the roads, together with a possible reduction in the number of traffic accidents. Once all these effects are given a monetary value, the costs are subtracted from the benefits, the results indicating the desirability of the project. Our sketch of this principle has been perhaps little over-simplified and may give the impression that SCBA deals only with hard economic values. Such an impression would be nonetheless misleading. The purpose of SCBA is to evaluate policy measures on the basis of their effects on the welfare (or utility) of individuals. While this welfare cannot in itself be measured directly, people nevertheless continually reveal (a part of) their preferences in an indirect way on the markets: when I buy item X for a price Px, this means that for me the value of the item in question has at least as much value as an alternative use of my Px dollars. In this way I disclose a lower limit for my subjective willingness to pay for a particular item. In an analogous way, the fact that I am prepared to sell item Y at a price Py, discloses information on the upper limit of the subjective loss such a sale would incur for me. In fact, a large proportion of the effects of economic policy measures operate via the market. Consequently, such effects can be assigned a monetary value on the basis of their market prices. Imagine, for example, such an analysis of the costs entailed in laying the high-speed train line or of the economic return from the company manufacturing non-ferrous metals and the hydroelectric plant. Whatever the particular case may be, the general idea is to retain this market information and supplement it with the monetary evaluation of non-market effects. This is, of

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course, easier said than done; a great many methodological challenges still remain in relation to any SCBA project. Without going into too many technical details, these challenges can be summarised under three subheadings: (1) markets that are not perfect, (2) when markets do not exist, and (3) market values and the distribution of wealth.2 When markets are not perfect As we have noted, market prices provide information on the lower limit of an individuals willingness to pay and the upper limit for his or her required compensation for parting with a quantity of a certain good. Problems resulting from the concentration of power and from imperfect and asymmetrical information can lead to a situation where this upper limit and lower limit are at variance with their real effects on subjective welfare. In such an event, market prices need to be corrected: SCBA theory refers to shadow prices.3
2.1 2.2 When markets do not exist The evaluation of effects for which no market exists is obviously much more difficult. Such effects are nevertheless frequently of crucial importance. With reference to our introductory examples in this regard, we might think of noise pollution, threat to the countryside, the health of children, and the attack on traditional cultures. In order to evaluate these effects on the basis of the welfare of the individual, terms broader than those of material prosperity alone must be used. Advocates of SCBA tend to split this broader vision of the value of environment and nature into three components:4 (1) use value, which concerns the immediate benefit the user enjoys in actually utilising environmental goods; (2) option value, which refers to the potential benefit which utilisation of environmental goods might produce in the future (and for future generations); (3) existence value, which indicates the value that environmental or natural goods have in themselves, apart from any actual or potential use of the goods in question.

Consequently, the market price will only reflect a part of the entire value of a good. In fact, the market price for certain natural elements in some circumstances is zero, while their value is high and their subjective evaluation by the community great. Think, for example, of the extinction of threatened species of butterfly. Such subjective evaluations then must be measured with different techniques, a whole battery of which have been developed, ranging from interview methods to indirect measurement via market behaviour. In this way, for example, the differing market prices for similar houses located in noisy or quiet areas can give an indication of the readiness to pay for peace and quiet. Still, none of these techniques is perfect; indeed, there continues to be lively debate concerning their relative reliability.5
2.3 Market values and the distribution of wealth The use of monetary evaluation raises the question of the uneven distribution of wealth. If a rich person is prepared to pay $400 per month for a particular environmental good and a poor person only $200, this does not mean that the former considers the environment to be twice as important as the latter. In order to calculate the global effects on subjective welfare we cannot simply add up such figures. In theory, however, the solution is obvious: in adding up the various evaluations, the contribution of the rich person can be simply assigned a lesser weight than that of the poor person.6 But in order to apply such a theoretical solution in practice, extremely detailed information is required on the distinct effects on different people.

The previous three sections have merely been a description of a scientific project. The project itself is still far from complete, but that in itself should not constitute a criticism. Nonetheless, the question does arise whether SCBA ought to be applied in practice before a complete and satisfactory answer can be provided for the questions

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which remain unanswered. Section 5 will return to this problem. Before this, however, I would like to explore more fundamental questions: Is the project meaningful at all? Is theoretical research in the context of SCBA desirable from an ethical or social point of view. If such questions were to be answered negatively, then the pragmatic question of applicability would simply become redundant. For the sake of improving our insight into the matter, the above mentioned framework is subdivided into a number of components. Through this division, broader questions will hopefully provide a beginning which can then be gradually narrowed down and applied to SCBA. The following points of departure will be discussed in succession: (a) consequentialism policy measures must be evaluated on the basis of their consequences, (b) explicitation of ethical evaluation the ethical evaluation of the consequences must be done explicitly and quantifying has an important role to play in this, (c) monetary evaluation in quantifying social choices, it is advisable to work with monetary evaluations. Acceptance of (a) need not imply acceptance of (b) and a fortiori (c). Nevertheless, in order to find SCBA a worthwhile and interesting project, one would have to accept (c) and therefore (a) and (b) as well.
3.

search once consequentialism is accepted. Lastly, a few of the dangers related to the consequentialist point of departure are discussed in subdivision 3.3.
3.1

Consequentialism and Calculation

The examples provided in the introduction were intentionally presented in a somewhat suggestive manner in order to illustrate that where social decision-making is concerned, the concrete consequences must be directive for ethical evaluation. As long as it is unclear which consequences are relevant for ethical analysis, this analysis remains a general point of departure which in itself does not imply a choice for the monetary approach of SCBA. Subdivision 3.1 briefly defends the consequentialist point of departure.7 Subdivision 3.2 examines the role set aside for scientific re-

Ethical evaluation In making social decisions, mediation between the interests and views of a variety of different people needs to occur. Moreover (and related), the consequences of such decisions are borne, for the most part, by people other than those who actually make those decisions. In such circumstances, it seems inevitable to me, and indeed desirable, that the consequences for different people determine the ethical evaluation of the decision. As our introductory examples made clear, every policy measure has effects in diverse areas: social, medical, ecological, economic. In assessing a particular policy, the positive effects in certain areas need to be weighed up against the negative effects in other areas. The final result ultimately depends on the magnitude of the effects, on the one hand, and the ethical weight ascribed to such effects. On the other hand, to determine the magnitude or scope of an effect is a challenge confronting science and scientific research. This question will be returned to in subdivision 3.2. The evaluation of an effect, however, is an ethical question, a question which can be very concretely formulated within this framework: Which consequences are important, and how should they be weighed up against each other? Undoubtedly, the evaluation of diverse effects is not an easy task. There are, nevertheless, only two exceptional cases where it can be avoided. First, we can make difficult decisions simple by giving absolute priority to one principle. For example, setting nature above everything would mean that there would never be a high-speed train route through Belgium, and perhaps also that the dam on the river La Grande would never have been built. An absolute respect for the health of children would imply that the non-ferrous metal manufacturer would have to close down immedi-

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ately and unconditionally because the health of children is our highest priority. Such absolute principles, however, will not take us very far. In assessing the high-speed train project, it is not my intention to make a statement about the importance of respect for the environment, but from a general perspective, an absolute respect for the environment would imply that human activity of whatever sort would become impossible. Likewise, the closure of the non-ferrous metal manufacturer is perhaps defensible from the perspective of the health concerns of young children. The contention, however, that every form of industry which involves some risk to human health should be closed down, would be far from reasonable to maintain. It would be just as difficult to uphold the proposition that all of the means at societys disposal should go to the development and maintenance of sophisticated and expensive machinery in order to prolong the lives of a few sick children at the cost, for example, of every form of cultural activity. For that matter, respect for the environment and the health of children can, in some cases, be in direct conflict with one another; for example, where the eradication of certain kinds of insects might prevent the spread of disease, it might at the same time have disastrous consequences for the ecological balance of nature. To conclude: in most cases, a determined adherence to one particular and absolute ethical principle is untenable. There is also a second set of circumstances in which ethical evaluation can be avoided. When a choice is being made between two different measures, it can happen that one option dominates the other in every respect. In this case the dominating option is clearly the best, whatever weight might be ascribed to the various dimensions involved. Such situations, however, will be very rare. In every case where one measure is better than the other on some levels, and worse on others, a decision between them will only be able to be made if a weight is somehow assigned to the various effects.

In the end, decision-making inescapably includes some form of ethical evaluation. When explicitation about this dimension of the decisionmaking process is neglected, it will simply remain implicit. This might be illustrated with the example of the manufacturer of non-ferrous metals. Suppose that society is concerned about both jobs and health. Now the factory in question employs a thousand people, while only one child becomes sick each year. If the government does not intervene to close the factory, this implies that it considers the employment of a thousand people more important than the health of that one child. Suppose then, that new research reveals that not one but five children become sick each year, and that under pressure from this new information the factory is closed. This implies that the government implicitly considers the health of five children more important than the employment of a thousand people. Relative evaluation is quite clear in this example. An analogous argument can be made for all other difficult decisions. The relationship between implicit and explicit evaluation will be examined in section 4.3.
3.2 Scientific expertise and the calculation of effects As soon as it is accepted that consequences are important, an important role for scientific research is immediately established. Indeed, the aim of science is to predict the effects of a particular measure as accurately as possible. Part of these effects are in the domain of the natural sciences. In the environmental context the examples are not hard to find. How much noise pollution is created by a high-speed train? What is the relationship between noise pollution and damage to ones hearing? How will the flora and fauna react to the laying of the railway tracks? At what level will lead and mercury pollution in the reservoir become dangerous to the health of those who eat fish from its waters? What are the medical consequences likely to be? A general consensus exists on the importance of these questions and thereby

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on the research which seeks to answer them. The importance of a further series of questions is, nevertheless, frequently underestimated. In order to evaluate policy measures, the influence such measures exercise on peoples behaviour, both as individuals and as a society, also needs to be examined. How many people will actually take the high-speed train instead of their car or a plane? How will the factory workers and those who live nearby react to the factorys closure? How do companies react to the implementation of emission standards? What is the best way to stimulate research into new ways of producing energy? There is substantial empirical evidence which shows that the formulation of standards is not enough in itself to generate the necessary behavioural changes. Moreover, a large number of measures have side-effects, whether we like it or not. For example, if the dam mentioned among the introductory examples had not been built, the effect would have been to increase energy costs and reduce employment in the area (together with adversely affecting the material welfare of the Inuit and Cree Indians). The closure of environmentally unfriendly factories in Belgium would (probably) force them to relocate to the Third World where safety regulations are less strictly applied and where the risk of disaster is consequently much greater. For analysis to be complete, such effects must also be included in the evaluation of policy measures. As a result, the social sciences have an essential role to play.8 The dangers of calculation A strictly consequentialist analysis carries an immediate danger with it: it runs the risk of quickly turning into a calculated and calculating attitude, bereft of any form of ethical inspiration. Ethics also entails feelings and motivation, and one can understand the fear that values such as love for the environment or respect for the whole human person are unlikely to assume their proper place where cynical calculation is the order of the day. This makes consequentialism less attractive as a
3.3

basis for personal ethics. It can only be hoped that some individuals will fulfil an exemplary function and apply rules of behaviour to themselves in a situation where their individual behaviour has only a limited social impact, or even none at all. This paper, however, has been intentionally confined to governmental decisions in the sphere of economics and with decisions that have a wide social impact. As already pointed out, a consequentialist attitude to such decisions seems unavoidable. The ethical value of exemplary behaviour would be quite questionable if the negative consequences have to be borne by somebody else. Nevertheless, we need to be conscious of the dangers of cynicism while trying to adequately position ourselves in the tension between calculation and inspiration. Consequentialist analysis must distinguish between the intentions of an act and its consequences. Idealists can cause a lot of damage if their well-intentioned measures have disastrous effects. At the same time, behaviour prompted by lesser motives can achieve the desired results. A campaign which appeals to the higher motives of the consumer would probably be less effective than a heavy tax on disposable packaging, which ultimately only addresses material self-interest.9 In that case, consequentialism would clearly opt for the second policy. Nevertheless, care must be taken to not simply succumb to whatever egoistic motive is dominant or, worse still, conclude that self-interest is ethically superior to more altruistic motives. Such an unwarranted leap of thought is, however, not infrequently made by economists as they wax lyrical on the efficiency of a perfect market in which individuals are motivated by self-interest.10 The problem even becomes all the more complicated because policy decisions which take behaviour on the basis of self-interest as given are perhaps guilty of stimulating such behaviour at the same time. For example, the introduction of a tax on disposable packaging would perhaps extinguish the idealism of some consumers, push-

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ing them more and more towards an attitude of calculation. A conflict can arise, therefore, between short-term and long-term policy aims, a conflict which can only be resolved by a wellthought-out mixture of policy instruments.
4.

Political Reality and Scientific Expertise: Explicit or Implicit Evaluation?

The previous section may have given the impression that within a consequentialist approach the search for the best policy measure has almost become simply a technical problem (with an ethical tint). In such a technocratic ideal world, ethicists would determine which consequences need to be examined and their relative importance, while scientists would calculate the magnitude of the effects involved. A simple combination of both sets of data would then generate the ethically best solution. In reality, of course, decisions are not made in that way. They emerge instead from a complicated political process. It is the government that decides whether or not there is going to be a highspeed train; the government decides which environmental norms to apply to factories; the legal system determines the conditions for compulsory purchase, as well as the necessary compensations which accompany it. A few characteristics of such political decision-making processes, in relation to the ethical perspective presented in section 3, will now be examined in section 4.1. While the political decision-making process is far from a technocratic ideal, section 4.2 argues that the whole question of a technocratic ideal is in fact a fiction. Section 4.3 then brings together the various elements in an effort to discover the ultimate role of experts in the political decision-making process.
4.1 The political reality In Western political systems of the parliamentary type, and I confine myself only to these, concrete decisions emerge from a complicated interplay of diverse forces. At

regular intervals politicians have to submit themselves to the approval of the voters. The scope of this democratic control depends, on the one hand, on the availability of information and the political awareness of voters, and on the other, on the particular features of the electoral system. These factors also determine the degree of influence to be had by political parties and diverse interest groups, for example, the environmental movement, the industrial lobbies, the unions, etc. Finally, the restraining or stimulating influence of the government should not be forgotten. In addition to all this, conflicting interests and relative positions of power have a role to play. How should such a process of decision-making be evaluated from a consequentialist perspective? In what way is information gathered on the various effects involved? How are the various effects assessed and weighed up against each other? In the first place, there are relatively few forces at work which would enable the accumulation of objective information. Interest groups flood politicians with tendentious and incomplete information: environmentalists report on the environment, industrial lobbyists study economic effects, unions scrutinize the employment situation. It would be uncommon to find these divergent elements presented in a more or less comparable manner, and even less common to find thorough-going discussions with regard to their content. Interest groups have the tendency simply to negate information they consider to be dangerous, or not in their own interest. An administration is frequently more absorbed with the implementation of policy than with its preparation. Indeed, not all groups are equally competent in gathering what would be relevant information, and this can lead to a situation in which certain effects are not considered at all. In the second place, ethical evaluation is more often than not an implicit matter. Most interest groups transform difficult decisions into easy ones as described in section 3.1, i.e. by concentrating themselves on one all-exclusive aim or

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goal. The beliefs and opinions of such groups are, therefore, quite predictable. Politicians are then burdened with all the responsibility for negotiating between the various sets of demands. It goes without saying that, to a greater or lesser extent, they are motivated by ethical considerations and have been sometimes known to conduct their own consequentialist analysis. At the same time, however, decisions made also reflect the relative positions of power of those involved, as well as the political (and therefore not economic or ethical) feasibility of the decisions in question.
4.2 The technocratic fiction and the monopoly of ethical truth How then should the results of the policy and process of decision-making be evaluated? The technocratic ideal outlined above offers an easy but all too simplistic answer. In this way of thinking, a detached and objective analysis would facilitate clear and well grounded judgements about every political decision. For many defenders of SCBA this is the ultimate goal. For many of its opponents this is a horrifying thought because it raises the alarming image of an ethical-scientific technocracy which would render the entire political process of discussion and conflict redundant. Both these hopes and fears are, however, misplaced. The technocratic ideal is in fact a fiction; unanimity on the values which ought to be maintained in making difficult social choices does not exist. In this sense, SCBA represents only one specific value option which is not shared by everyone. Scientists are, at the same time, equally divided on the effects of particular policies. Moreover, reality teaches that both types of divergent opinions frequently go together and reinforce one another. Apparently the way facts are perceived is influenced by basic values, and this is equally true for scientists and ethicists. There are two possible positions concerning the diversity of ethical opinions and the extent to which adherence to one or other of these positions will effect the way the role of the experts in

the political enterprise is perceived. A first possibility consists of holding on to ones ethical vision, wherein one specific choice of values (with specific weights to be ascribed to the environment, mobility, employment, the health of children, the protection of traditional cultures) is the only correct choice. In such a case, the results of the political process will only rarely be considered ethically correct. From this perspective, people will do whatever they can to push through the decisions which lie closest to their ideals. Specific kinds of scientific research will be undertaken which uphold their personal vision of things. Ethical values which they consider to be undervalued in the political process will be strongly emphasised. Suppose, for example, that I am both concerned with the situation of the poor and with the environment, and that there is a discussion on the apportioning of governmental efforts regarding both objectives. According to my ideal there should be 50-50 division, but the political reality is such that a 1090 division has evolved. In this case I would consider it important to exaggerate my personal preference for the alleviation of poverty and direct all my attention (and the attention of public as well) towards this objective in spite of the fact that I also consider the environment important. Since the environment is already being defended by other interest groups in a rather one-sided (in my opinion) way, I might hope that my simple yet extreme message might restore the balance. In a certain sense this is dishonest (an economist would speak of strategic behaviour), but if dishonesty leads to the best results, then this approach would be the correct choice for a consistent consequentialist.11 It is not in the least my intention to condemn such a strategic position. On the contrary, without the biased and one-sided efforts of interest groups and scientists on behalf of the environment and the alleviation of poverty, these essential social goals would perhaps have never reached the political forum. I would, nevertheless, still like to

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emphasise the importance of a second perspective. Within this second perspective, scientists accept the social reality in which a variety of ethical positions exist as a given, thereby relativising their own ethical vision. It is essential, therefore, that a procedure be developed for negotiating between the various positions. Only the political process is eligible for this negotiating role. Evaluation of concrete political decisions will then follow upon evaluation of the political process itself. From a democratic standpoint, the more a political system can offer a fair chance to each position, the more acceptable the final results are likely to be. It is true that a concrete decision will only rarely coincide with what one would have chosen, but it can still be considered as an honourable and ethically acceptable compromise. From this point of view, how can the experts contribute to improving the quality of the political decision-making process?
4.3 Ethics, politics and science The previous section offers an immediate topic for scientific research: the relationship between the results of the political process and the concrete features of that process itself. The way in which scientists might involve themselves in the actual debate on specific difficult decisions (whether the highspeed train line should be constructed or the nonferrous metal factory be closed or the hydroelectric generator be built) is a much more difficult matter. There is something to be said for the suggestion that certain difficult decisions might be better left implicit. Difficult decisions can indeed be divisive: it is perhaps psychologically easier not to know what the implicit price of a childs life might be in different spheres of our society (environment and economy, health care, the roads). Moreover, the constant explicitation of every possible conflict of values and interests would make any sort of consensus impossible. Nevertheless, as far as I can see, such a cover-up would

be difficult to accept in all those situations (e.g. the examples given in the introduction) where a difficult decision cannot be put off any longer and where social debate on the question is already underway. As already noted, when decisions are made in these situations a certain weight or value is implicitly ascribed to the various dimensions involved. Hiding value judgements under the table would only serve to nullify the possibility of any kind of rational and democratic discussion. In what way might scientists contribute to a more insightful and explicit process of ethical evaluation of the various effects of a decision? A first contribution was already evident in section 3.2, namely the accurate description of the expected consequences of governmental decisions. Actually, it is really a matter of describing or predicting facts. It is, however, painful to see how divergent these predictions can be in reality, and how strong the relationship can be between the predictions and values of the scientists involved. It would already be a great step forward if scientists from various quarters could arrive at a structured discussion of the facts, thereby distancing themselves as far as possible from their own personal values. Without a doubt, this task is first and foremost for the scientists. The next step in the process would be the ethical-political choice. Would it be possible to structure this step even further? There is frequently a great need for such structuring. Suppose that the scientists involved with the high-speed train had provided information on the possible consequences of different decisions (not going ahead with construction; a variety of different routes in case of a decision to go ahead with construction) in a clearly structured way. The effects, as already noted, are extremely diverse and in the first instance are measured in different units (decibels of noise pollution, monetary costs, time saved in hours, number of traffic accidents; but also less quantified, as in the level of damage to the environment). In spite of this comprehensive

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information, the decision still remains a difficult one. Multi-criteria methods attempt to structure the problem without reducing all the effects to the same common denominator. This offers the advantage of clearly emphasising the fact that we are dealing with value-laden choices. On the other hand, however, for those who have to make the decisions, such structuring is often only a minor step forward since the danger exists that the easiest to measure and most immediately tangible effects (often monetary) end up completely dominating the decision-making process. The job of the decision-maker can be rendered easier by reducing more of the effects to a common denominator. Decision-makers are indeed looking for this kind of explicit assistance. At the present, monetary evaluation, as proposed by SCBA, offers the only possibility on this level. The time has come, then, to return explicitly to SCBA.
5.

produce widely divergent results. At the present time, therefore, it would be unrealistic to suggest that SCBA can provide unambiguous advice where difficult decisions are concerned. Nevertheless, monetary evaluation, which is characteristic for SCBA, remains, for the time being, the best method of reducing the various effects of a decision to a common denominator. Section 5.2 will discuss both the advantages and disadvantages of this. as an ethical system: individual welfare and non-use values Insofar as all its decisions are evaluated on the basis of their consequences for the welfare of the individual, SCBA has its roots in utilitarianism. As a result, ones assessment of SCBA as an ethical system will completely coincide with ones assessment of utilitarianism.12 By placing the emphasis entirely on individual preferences and subjective welfare, utilitarianism leaves no room for independent ethical argumentation. The plausibility of such a position is difficult to see. Only a few points are introduced here in order to illustrate that there is a need for a constant critical examination of evaluations made on the basis of individual welfare. In other words, SCBA cannot replace political and ethical debate. In the first place, it is not always clear what should be placed under preferences. People react and reason at different levels and are able, to a certain extent, to distinguish between their immediate self-interest and their ethical preferences. In actual human behaviour, these different levels are continually intertwined. In the second place, peoples individual preferences are also influenced by their social environment. As a consequence, it would be difficult to use such preferences as a basis for judging interventions in the social environment itself. As a matter of fact, such judgements should be founded, in part, on future preferences which will be brought about by the very interventions in question. Moreover, there is no place in SCBA for rights. In adding up the effects of a decision (weighted
5.1 SCBA

The Monetary Evaluation of Individual Welfare?

Socio-economic cost-benefit analysis is an ambitious technique which, in its most optimistic form, intends to provide a final answer to the difficult questions raised. A large proportion of this ambition has already been labelled as a technocratic fiction. Even SCBA departs from a specific value option in which the welfare of the individual, as he or she perceives it, constitutes the ultimate criterion of evaluation. Although this might seem to be an eminently democratic point of departure, and is often presented as such, it is clear that no social consensus has been reached on the matter. Such a point of departure will indeed be rejected in section 5.1. Furthermore, unanimity is not found among the practitioners of SCBA as to the way in which the technical problems outlined in the second section should be solved. There is, in fact, diversity of opinions concerning the evaluation of nonmarket values, and different evaluation techniques

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or not) on individual welfare, a certain level of economic advantage from the hydro-electric generator will be sufficient to outweigh the loss that the Inuit and Cree Indians will have to endure through the loss of their land. It might be argued that in such a circumstances essential rights are being violated. In fact, the importance of traditional cultures constitutes a fine example of the problem described above, i.e. on what basis can the welfare of westernised Indian children be compared with the welfare they might have achieved if they had been able to preserve their traditional culture? It is a well-known fact that people do not always follow the axioms of rational behaviour when they are placed in situations of risk. Their evaluation of the situation surrounding the nonferrous metal factory might, therefore, have a dubious basis. In general people find it difficult to appraise situations with which they have had little experience or about which they have perhaps never even thought. Consider, for example, the long-term effects on health and ecological balance brought about by damage to the countryside and the environment. People not only tend to underestimate (or overestimate) the importance of such phenomena from a lack of information, but their preferences and evaluations tend to be extremely unstable as well. When efforts are then made to measure them, e.g. by the interview technique, the results will acutely depend upon the technique used (and perhaps even on the mood of the moment). Bearing all this in mind, however, I still do not think that the use of monetary evaluation methods has been rendered completely pointless.
5.2 Monetary evaluation and the economisation of life Section 4 proposed that multi-dimensional choice problems become much easier when, as much as is possible, the different dimensions have been reduced to a single common denominator. Monetary evaluation methods offer one alternative (and the only one to be elaborated

so far). Many decisions in the economic sphere take place on the market where market prices represent immediately available information. Nevertheless, it is clear from what was said above that one needs to be careful with such information. The rejection of individual welfare as the exclusive point of reference does seem to imply that market prices would lose their value as an evaluation criterion, since, in the best possible scenario, they can only offer a reflection of that individual welfare. This, however, would be a rather hasty conclusion. Even in the case of a broader consequentialism, one that does not focus exclusively on subjective welfare, there will still be many instances when there will be no reason for departing from popular preferences. The fact that people can, to a large extent, put together their own consumption package and decide for themselves how they want to spend their time (including whether and how much they want to work) testifies to an elementary respect for human freedom. Insofar as society resolves to respect such decisions, market prices (with the reservation mentioned in section 2) will continue to be an important source of information. When a departure from market behaviour is sought, for example because of a desire to restrict the production and consumption of certain goods (weapons and drugs) or stimulate production and consumption of others (culture?), the help of an adequate definition of ethical shadow prices can be utilized. One essential question, however, remains: Does it make any sense to assess non-market values in monetary terms? As already noted, such monetary evaluations need to be interpreted with caution. The enormous variability in measurement results does not only follow from our lack of analytic techniques, but also reflects the more fundamental liability and uncertainty surrounding preferences as such. Moreover, the ethical value of such preferences in a non-market context is at times very debatable. I have problems, for example, with the conclusion that animal species

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threatened with extinction should have no right of survival if the majority of people hic et nunc show little interest in their plight due to lack of information and a set of preferences shaped by the industrial system. Besides the technical questions which need to be formulated in the context of survey techniques, inquiry must also continue into the ethical relevance of peoples willingness to pay in the same context. The use of differing house prices as a means for determining the subjective value of peace and quiet is perhaps more defensible than the use of interview techniques to assess peoples willingness to pay for the preservation of endangered animal species. At the same time, it is perhaps impossible to measure the importance of traditional cultures in monetary terms. Nevertheless, even when the results are not acceptable as such, they still provide useful information. In any case, they can still constitute a beneficial reference point for the concrete formulation of important ethical questions. What is the quality of this popular information? To what extent can individual preferences be considered well-formed and stable? Are there good reasons for opposing such preferences? Some people are worried about the increasing economisation of our society and are inclined to suggest that the use of monetary evaluation techniques has in fact stimulated this process. I share this concern where it is a question of the continuous spread of a market place in which more and more things are offered for sale. This, however, has little to do with the use of monetary evaluation for the purposes of value assessment. Money is not used here as an end in itself, but rather as a unit of measurement which facilitates the expression of the relative value of material and immaterial things, whether or not they are for sale. The fact that immaterial values are expressed in financial terms in no way implies that they are thereby being offered for sale. Questions concerning which activities should and should not take place on the market are essential, but are largely beside

the point in this context. Economisation can also be interpreted in a more diluted way, one in which the monetary evaluation of non-material things is already considered objectionable as such. If this position does not stem from confusion with the previous position, then it reflects the idea that weighing up material and immaterial values (whatever they might be) against one another is both undesirable and impossible. Such an idea, however, cannot be maintained.13 Nevertheless, all of this is related to the most significant risk associated with the use of monetary evaluations, that is, the risk that ethical reservation, which is essential for their adequate use, will be forgotten as soon as the evaluations themselves are made available. In this instance we face the danger of a rapid and hazardous collapse into the technocratic illusion. In view of the wide differences of opinion which currently exist, I still think that this danger should not be exaggerated. As a matter of fact, it needs to be considered in the light of another danger, one which is currently more pressing in the actual process of decision-making, namely that effects which are not evaluated in terms of money are largely neglected, implying that decisions are made on the basis of a strictly monetary market calculus.
6.

Conclusion

A few months ago I was given five minutes to explain the usefulness of monetary evaluation techniques to an audience largely composed of non-economists. There was a period set aside for questions afterwards. The audience, which had been asleep up to that point, reacted vehemently. The first reaction came from a well-respected biologist who angrily snapped that what I had said was scientific nonsense and ethically scandalous. I was naturally quite perplexed. Of course, the biologists reaction was partly based on misunderstanding, but it also partly reflected his deep fear. I do not foster the illusion that this

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paper will remove that misunderstanding and fear, but I do hope it will contribute to a more tranquil order of discussion. Without repeating all the points made, a brief summary of my most important points might prove helpful. In evaluating difficult decisions which have a wide social impact, consequentialist ethics offers the most reliable footing. Consequentialism is necessary, for that matter, in order to make room for scientific input which will in turn endeavour to provide accurate and objective predictions of the effects of the decisions in question. In the final analysis, we are dealing with value-laden choices and consequentialism should not be, and in fact cannot be, reduced to one specific ethical option. For this reason a political process is necessary for negotiating between the diversity of perspectives. Such a process will proceed in a more structured manner if techniques to make our ethical evaluation more explicit are used, and the furthest that can be gone in this regard is to try to reduce the various effects, as far as is possible, to one common denominator. Socio-economic cost-benefit analysis is often presented as an objective instrument for evaluat-

ing governmental decisions. As a matter of fact, however, it departs from a quite specific utilitarian option (with a correction for the unequal distribution of wealth), and one which is not easy to accept. From this perspective, decisions are evaluated exclusively on the basis of the subjective advantage they bring to individuals in society. The idea of evaluating the various effects involved in monetary terms can, nevertheless, remain of value, even when we are inclined to resist the technocratic illusion fostered by some supporters of SCBA. Monetary evaluation should certainly not be considered the last word in the discussion. On the contrary, it should be seen as a necessary reference point for the structuring of a wider ethical and political debate. In this paper I have focused exclusively on difficult governmental decisions which have significant economic aspects, i.e. where many of the effects involved can easily be evaluated in market terms. Of course, when this is not the case, the practical advantages of monetary evaluation techniques disappear. When decisions take place at a more personal level, even consequentialism will lose much of its ethical appeal.

Notes
1. The example of the high-speed train is treated in more detail in J. MORTELMANS, et al., De economische wenselijkheid van een snelspoorverbinding door Belgi in Leuvense Economische Standpunten 40(1987) and in L. BERLAGE, E. SCHOKKAERT, Hebben economen iets te zeggen? in Tijdschrift voor Economie en Management 33(1988). The remaining examples are discussed together with many others in E. SCHOKKAERT, J. EYCKMANS, Environment in B. HARVEY (ed.), Business Ethics. A European Approach. London, Prentice Hall, 1994, p. 192-235. 2. An interesting collection of texts in which a variety of fundamental problems are considered is to be found in R. LAYARD, S. GLAISTER (eds.), Cost-Benefit Analysis. Cambridge, Cambridge University Press, 1994. Otherwise, those readers who are not interested in questions of economics, but who are prepared to accept that the supporters of SCBA are well aware of the problems which flow from market imperfections, the necessity to evaluate non-market values and the uneven distribution of income, can skip the rest of this section. 3. Modern theories of cost-benefit analysis use shadow prices as their most essential concept and explicitly define the circumstances under which shadow prices coincide with market prices. Cf., for example, J. DRZE, N. STERN, Shadow Prices and Markets. Policy Reform, Shadow Prices and Market Prices in R. LAYARD, S. GLAISTER (eds.), Cost-Benefit Analysis. Cambridge, Cambridge University Press, 1994, p. 59-99. 4. For a more detailed discussion of the different components see E. SCHOKKAERT, Het spanningsveld tussen e economie en ecologie in J. SELLING, et al. (eds.), Christenen en Samenleving. Kampen, Kok, 1991, p. 123-124.

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5. A few simple (and controversial) examples are provided in J. MAES, S. PROOST, E. SCHOKKAERT, Economische waardering van milieuschade in A. VERBRUGGEN (ed.), Leren om te keren, Milieu- en Natuurrapport Vlaanderen. Leuven, Garant, 1994, p. 706-716. 6. The different weights in question will reflect the subjective importance of one dollar for various individuals as well as the ethical importance we ascribe to the distribution of wealth. 7. A more thorough examination of the necessity and consequences of extended consequentialism can be found in E. SCHOKKAERT, Cynische boekhouders en bevlogen profeten in K. BOEY, T. VANDEVELDE, J. VAN GERWEN (eds.), Een prijswaardige economie. Antwerp, UFSIA Groot-Bijgaarden, Selektie-Infotex, 1993, p. 291-315. 8. I am quite conscious of talking of the social sciences and not economics: sociological and psychological research are also essential for the correct estimation of the effects of a particular policy measure. 9. This is only an example; I do not want to suggest that such campaigns would be better avoided. On the contrary, there is reliable evidence to prove that people are substantially moved by environmental motives. (e.g. collection of separated household waste). 10. Even a consequentialist would find such a conclusion faulty. A society made up exclusively of environmentally aware altruists would perhaps be able to solve its environmental problems much more efficiently than one based entirely on the pursuit of private gain. 11. The limits of this argument, however, are quickly reached. Is it also acceptable for a consequentialist to present information concerning the facts in a tendentious and distorted fashion? I would certainly answer in the negative, since such a position would, in the long-run, jeopardise the credibility of the entire scientific enterprise. We might affiliate ourselves here with the well-known discussion on act and rule utilitarianism and make a distinction between act and rule consequentialism. 12. Of course, the evaluation of the effects of the distribution of wealth goes beyond strict sum-utilitarianism. For an accurate and critical discussion of these variants see A. SEN, B. WILLIAMS, Utilitarianism and Beyond. Cambridge, Cambridge University Press, 1982. 13. This short paragraph says nothing about the relative worth of material and immaterial values for ethical evaluation.

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