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Accounting for subsistence needs in cost-benefit analysis
1 : Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture
(Irstea)
Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture - IRSTEA (FRANCE)
2 : Aix-Marseille School of Economics
(CNRS-AMSE UMR 7316)
CNRS : UMR7316, Aix-Marseille Université - AMU
Revealed and stated preference techniques are widely used to assess non-market components, in particular in cost-benefit analysis (CBA). First, however, individuals have to satisfy subsistence needs through market good consumption, which affects their ability to pay. We provide a methodological framework and derive a correction factor to account for this effect. We quantify the impacts of neglecting it on the desirability and the ranking of projects from a theoretical, a numerical and an empirical perspective. A plutocratic bias emerges: the views of the richest - whatever they are - are more likely to impact CBA-based decision-making.
