The paper focuses attention on step 1 and 2, while step 3 is disregarded. Hence, I do not study
how the final collective decision is reached, or what the final decision is; the paper is concerned
with the individual evaluation of projects before processes such as bargaining, voting, lobbying,
etc., begin. One might object that an individual may want to support a project for strategic rea-
sons, so that the collective decision procedure does indeed matter for individuals’ ranking of
projects. However, if strategic behavior is to make any sense, the individual must first know which
projects he really prefers. Hence, his evaluation in step 2 does not necessarily correspond to infor-
mation he reveals to others in step 3.
In Section 2, I present a model where several individuals participate in a decision-making pro-
cess. Each decision-maker uses available informa- tion and her own normative views to judge the
welfare effects of alternative projects. In Section 3, the model is used to discuss the performance of
cost-benefit analysis as informational input to public debate. It is demonstrated that aggregate
net willingness to pay information is too aggre- gated for this purpose, in the sense that only
decision-makers who accept certain controversial assumptions can use this information to evaluate
projects in accordance with their own ethical views. Section 4 shows that net willingness to pay
by groups may be useful as information for all participants in the debate, but this requires that
groups are chosen in a particular way — within groups, welfare weights must be equal for every
group member, according to every decision- maker. This is clearly difficult to achieve in prac-
tice since decision-makers’ welfare weights are usually not known. If such groups are identified,
however, it turns out that individual welfare judgements can alternatively be based on physical
unit measures of environmental change. Hence, monetary valuation of environmental change is
not essential in this case.
Section 5 demonstrates that for projects with particularly simple income distribution effects, it
is possible to provide sufficient information to the public debate without making assumptions on
decision-makers’ welfare weights. This requires, however, that environmental changes are de-
scribed using physical unit indicators, not mone- tary values. Thus, for such projects, monetary
valuation is less useful as input to democratic debate than physical unit indicators. Section 6
concludes.
2. Normative disagreement in public debate: A simple model
Below, I will use a simple mathematical model to formalize my argument. Since parts of the
presentation may seem somewhat technical to those not inclined to mathematical rigor, note
that the whole model set-up can be summarized by two equations Eq. 2.1 and Eq. 2.2, repre-
senting, respectively, decision makers’ ethical views and their judgements of individuals’ well-
being.
Let N = {1, . . . ,n} be the set of all members of society, while J ¤ N is the set of decision-mak-
ers. Each decision-maker j J has his or her own ethical or political views, which for the case of
simplicity, I will regard as exogenously given.
3
Assume further that for each j, these ethical views can be expressed as a social welfare function
W
j
= V
j
v
1 j
, . . . ,v
n j
, Z 2.1
where W
j
is social welfare as judged by individ- ual j, v
i j
is person i’s well-being as judged by j, and Z allows for inclusion of non-welfaristic con-
siderations.
4
This may, for example, be the view that certain rights and duties should be respected,
the view that nature has an intrinsic value, or religious concerns. For simplicity, Z will be
treated as a single variable. Eq. 2.1 does not necessarily describe the ethical views of a purely
benevolent decision-maker: It could also be inter- preted as a representation of j’s political views,
which may be motivated, for example, by re-elec-
3
The model presented here is a further development of a model developed by Brekke et al. 1996.
4
Sen 1979 defines a value system as welfaristic if ‘social welfare is a function of personal utility levels, so that any two
states must be ranked entirely on the basis of personal utility levels in the two states’.
tion concerns, or by regarding oneself as a repre- sentative of some subgroup of the population.
5
To be able to assess and compare the social welfare effects of different projects, decision-mak-
ers must compare welfare effects for different people; formally, they need a cardinal and inter-
personally comparable concept of well-being.
6
The neoclassical concept of utility functions, defined as numerical representations of binary
revealed choices, is neither cardinal nor compara- ble between individuals. Still, in everyday life
people appear to repeatedly make their own sub- jective judgements on individual well-being in an
informal way. Thus, assume that any decision- maker j is capable of making an informal, subjec-
tive judgement of any other individual i’s well-being:
7
v
i j
= n
j
x
i
, y; a
i
2.2 where v
i j
is j’s judgement of i’s well-being, x
i
is i ’s income, and y is environmental quality mea-
sured in physical units, which is assumed to be a pure public good.
8
Further, a
i
is a vector describ- ing i’s characteristics, such as age, sex, socioeco-
nomic class,
or health.
Characteristics are
regarded as fixed and observable, but a
i
is not allowed to contain full identification of i.
9
Also, prices are assumed to be fixed throughout the
analysis, implying that the n
j
functions bear much resemblance to indirect utility functions. Note,
however, that while the latter represent con- sumers’ own revealed choices, the former repre-
sent beliefs about others’ well-being; moreover, while indirect utility functions are usually taken to
be ordinal, the n
j
functions will typically be both cardinal and interpersonally comparable from j’s
point of view.
10
Let X denote the vector of individual incomes for all i N. Assume that the set of alternative,
feasible projects, B, is clearly defined. Any project b B, including the status quo ‘project’ b = 0 do-
ing nothing, leads to a social state X, y, Z; hence, X, y and Z can be regarded as functions of
b. This implies Eq. 2.1 and Eq. 2.2 that both W
j
and v
i j
will be functions of a,b, where a =
a
1
, . . . ,a
n
. The model is static and deter- ministic. For analytical simplicity, costless lump-
sum transfers are assumed to be infeasible. However, as will be discussed below, the latter
assumption is not crucial to the results.
To compare the social welfare effects of alterna- tive projects, each participant j in the debate must
identify W
j
b, a = W
j
b, a − W
j
0, a for every project b B. Assume that b is a marginal
project.
11
Define X b
as the vector of income differences between the status quo and the situa-
tion after the project is implemented, that is, X b = X b − X 0.
This corresponds to the negative of individuals’ monetary costs associated
with the project. Accordingly, define y b
and Z b as the differences y b − y 0 and Z b −
Z0, respectively. Then, when choosing between any two projects, each decision maker j will prefer
the project which yields the largest increase in her social welfare function:
5
However, when interpreting ‘decision-makers’ as ‘politi- cians’, note that if voters are concerned with social welfare,
politicians who maximize their chances of being re-elected will behave as if they too were concerned with social welfare
Mueller, 1987. Further, in a representative electoral system where voters have different normative beliefs, it may be opti-
mal for a vote-maximizing politician to behave in accordance with a different normative view than his competitors.
6
Arrow 1951; for a thorough discussion of the impossibil- ity theorem, see Sen 1970.
7
See Brekke et al. 1996.
8
For simplicity, y will be treated as a single variable rather than a vector, and phenomena such as altruism and envy are
disregarded. The model may be extended to cover publicly provided private goods, such as health care or education.
9
I assume anonymity of social welfare evaluations in the sense that if any v
i j
and v
l j
are interchanged in Eq. 2.1, then if a
i
= a
l
, this is not allowed to affect Wj. This anonymity assumption is less strict than others frequently used in the
social choice literature see Sen, 1977b. Here, using character- istics as a determinant when deciding what weight to give to
someone’s well-being e.g. by letting the well-being of small children count more than the well-being of adults is allowed.
10
Judgements are not necessarily correct in the sense that i would agree to j’s judgement, i.e. one may have v
i i
v
i j
. Indeed, judgements made by two different persons may not be
comparable at all, but individual j must be able to compare v
i j
and v
k j
for any i k.
11
This means that general equilibrium effects can be disre- garded, and impacts on individual well-being are small enough
to consider welfare weights constant.
b ]
j
b 0 iff
W
j
b, a ] W
j
b 0 , a.
where W
j
b, a =
i N
V
j
v
i j
n
j
x
i
x
i
b + n
j
y y b
n
+ V
j
Z Z b
2.3 for all a and all b B.
Eq. 2.3 can alternatively be written W
j
b, a =
i N
V
j
v
i j
n
j
x
i
x
i
b + n
j
y n
j
x
i
y b
n
+ V
j
Z Z b
2.4 which, under certain conditions, corresponds to a
weighted sum of individuals’ net willingness to pay willingness to pay minus costs, plus the
welfare effect of the intrinsic value variable rights, religious considerations. This expression
will be useful below.
Throughout the paper, I will assume that deci- sion-makers have sufficient a priori knowledge of
society to determine their subjective welfare weights V
j
v
i j
, n
j
x
i
, n
j
y and V
j
Z.
12
What they do not know, and need information about, are the impacts of alternative projects.
However, we have to take into account that peo- ple have a limited ability and time to receive and
understand information. Project reports from an- alysts cannot contain an unlimited amount of
detailed information. Formally, assume that each decision-maker is capable of handling a maximum
of K pieces of information regarding each project, where 1 B K B .
13
A piece of information is defined as a single number with an interpretation
attached to it. For example, the statement ‘the average increase in the income of single mothers
will be 2’ is a piece of information according to this definition.
14
If decision makers are presented with too much detailed information, they are
assumed to be unable to distinguish the data they need,
and are
thus unable
to determine
W
j
b,a. The aim of the analysis below is to identify sets
of information which enable any decision-maker to evaluate a project in accordance with her own
normative views, provided that the same informa- tion must be given to all j J. Such information
will be termed a sufficient welfare indicator set Brekke et al., 1996.
Definition 2.1: a sufficient welfare indicator set for project b is information that enables any decision
maker j J to determine W
j
b,a, for b B.
3. Cost-benefit analysis and disagreements
