--- Ray Lanier <[log in to unmask]> wrote:
> Steve:
>
> You wrote:
> >
> > Oh yeah, since we are dispensing pearls of wisdom here.
> >
> > If you can't run with the big dogs, stay on the porch.
> >
> > Steve
>
> Stevie boy, You have been dispensing "pearls of wisdom" and they
> are much
> appreciated and informative of your thinking.  Unfortunately they
> are so
> biased as to be irrelevant to major public decision making.  You
> obviously
> don't know the literature in this field.  But, of course, folks of
> your
> persuasion don't need to know the literature in order to spew forth
> "obiter
> dicta".  In the vernacular: "You are as full of shit as a Christmas
> goose".

Ray,

I am going to try to be as nice as possible about this.

My criticism actually was quite similar to yours.  You mention that
people have differnt value sets.  Fine.  I agree with you.  What I am
saying is going even beyond that.  That people have different value
sets and that they are unobservable.  Therefore it is not possible to
simply observe how much people value a given project.  Lets suppose
we have a project, call it Project Ray (in your honor).  Now, we have
three people (for simplicity here).

Typically with benefict/cost (b/c) analysis we would look at the
value of the project over time and discount it.  What if the three
people all have different values?  Which one do we use?  Do we add
them up?  Take an average?  In any event, how do we determine exactly
how much they value the project?  Ask them?  Well they could lie.
Those who want it badly might overstate their value and those who
don't might understate it.  Also, if the project is going to be
financed through tax dollars this could have an impact on people's
responses.

Getting people to reveal their true valuation of the project is quite
problematic.

Here is something from Jean-Jaques Laffont's text, _Fundamentals of
Public Economics_.

"A fundamental characteristic of economic systems is decentralizing
of information.  When a collective decision must be taken, whether it
be the choice of the level of a tax that internalizes an externality,
the choice of the level of a public good, the choice of the level of
output for a firm exhibiting increasing returns, or even the choice
of the social welfar function, the social decision maker must collect
information that by its very nature is decentralized since each agent
posses aspects of this information that he alone knows.  A problem of
strategic behavior arises with respect to this private information."

Steve here:  In short, what Laffont is saying is that I know
something and when you ask me I am going to act in a way that
benefits me the most.  That is I am going be behave strategically
when giving my answer.

Laffont continues:

"In other words, can a game be found for which the strategic
equilibria lead to the desired outcome?"

Steve again:  That is using the structure of game theory, can we
resolve the problem noted above.  The answer is in some regards yes.

The Revelation Principle (Gibbard 1973):  Let (g,M) be a mechanism
that implements the social choice function f(.) for the dominant
equilibrium concept.  There there exists a direct mechanism that
implements by revelation f(.) in dominant equilibria.

So far so good.  The problem is that these problems are very, very
complex.  Even simple examples quickly become quite cumbersome.
Further, many people might have problems with revealing certain types
of information.

Now lets jump over to the chapter on Cost-Benefit Analysis.

This chapter starts off with the following:

"First we consider an economy with two goods and we assume that the
consumer has the following quasi-linear, quasi-concave, increasing
utility function:

u(x,y) = x + v(y).

There is no income effect on the damand for good y; furthermore, we
choose a normalization of the utility function yeilding a constant
marginal utility equal to 1 for good x."

Steve here:  The last assumption can be thought of as treating good x
as an aggregate good according to the Hicks-Leontief theroem.
Anyhow, the problem, I was commenting on is that that is a pretty
damn stringent restriction on the utility function above.  It does
not give you lots of room to incorporate lots of different "value
sets".  We are stuck with that specification for the utility
function.  Further, what do we know about v(.)?

Now the general case works with the indirect utility function, V(p,R)
(where R is income, and P the vector of prices).  However, Laffont
closes the section for the general case as follows:

"In concluding this section, we assert that the concepts of
compensating or equivalent income variation have a precise meaning
for INDIVIDUAL demand functions.  The economist who possesses the
APPROPRIATE INFORMATION CONCERNING INDIVIDUAL DEMAND FUNCTIONS can
provide an approximation to these variations.  However, information
IS NOT AVAILABLE IF ECONOMETRIC ANALYSIS FURNISHES THE APPLIED
ECONOMIST WITH ONLY AGGREGATE DEMAND FUNCTIONS."  (caps for emphasis)

So what we see here is a need for massive amounts of data and
micro-analsysis (at the individual level so you could really call
this micro-micro analysis).  Even still the results could be wrong.
(We are talking estimates only here).  So the idea that we can
somehow arrive at the "Truth" using cost-benefit analysis is doubtful
at best.

I suspect similar criticisms can be levelled at the Multiple
Objective Planning type of analysis as well.  I do admit I don't know
much at all about that methodology.  I have only looked at a few
things the other night on-line.  However, from what little I have
read it seems that it is an attmept to go beyond cost-benefit
analysis and include other factors ("non-economic" factors such as
social and environmental factors).  While this is a good thing, it
still, from what I have read, does not seem to solve the problems
noted above, of course, since I have only just started reading that
literature I could be wrong.

Does this mean that cost-benefit analysis is just a simple waste of
time?  That it should never be done?  No, I think that is an extreme
conclusion.


> Maybe Stevie boy, you should stay *under*  the porch  since your
> "pearls of
> wisdom" merely regurgitate the received wisdom and you seem not
> competent
> enough to get outside the box.

Would you stop it with this "outside the box" stuff.  You are
starting to sound like those know-nothing consultants that come
through say this and virtually nothing else.  Besides, "thinking
outside the box" is a waste of time IF the solution to your problem
is inside the box.



> Tell me boy, how do you define "environmental ethics"?  Or do you
> even have
> a clue?
>
> It seems you cannot discuss controversial issues without insulting
> the
> other.  Maybe you should examine your ways of operating in an
> interpersonal
> way with those who do not share your *simplistic* world view.  Or
> do you not
> understand that others see themselves within the world in much more
> complex
> ways than do you.
>
> You have alot to learn boy.  And do not deceive yourself that your
> infantile
> maunderings will lead me to fall back in my views.  I have dealt
> with folks
> of your persuasion who have much, much more moxie than you have.
> And I
> learned to respect them.  But not you boy.  As I said before: "grow
> up".
>
> And, as I said before, WHERE ARE THE 2 LIST OWNERS??  WHY DO YOU
> CONDONE THE
> INFANTILE, OBNOXIOUS, INSULTING posts from this infantile, wannabe
> intellectual??

Pot, kettle black.  Look at yourself Ray.  How many times did you use
the diminutive term 'boy' in that last two posts?

Steve

__________________________________________________
Do You Yahoo!?
LAUNCH - Your Yahoo! Music Experience
http://launch.yahoo.com