Principles and Practices For Distributional Weighting : A New Approach

There are increasing calls for concrete suggestions for how to account for distributional impacts in regulatory analysis. Within the context of benefit-cost analysis, per se, one possibility is to apply “distributional weights,” to inflate costs and benefits experienced by poor or disadvantaged groups. We distinguish between “welfare weights,” intended to correct for the bias in willingness to pay caused by diminishing marginal utility of income, and “equity weights,” intended to account for the possibility that decision makers might place greater moral weight on the welfare of the poor, or other disadvantaged groups. We argue that welfare weights are appropriate and necessary to maintain the legitimacy of BCA as a measure of aggregate welfare, but that equity weights are inappropriate, because they involve moral judgments that should remain in the domain of democratically accountable decision makers and obfuscate both the welfare and equity impacts of policies. We offer concrete suggestions regarding the application of welfare weights and the calculation of “breakeven equity weights” to provide intuitively comprehensible and useful information about the tradeoffs between welfare and equity implicit in policies