Equity weighting increases valuations when using real-world data

Abstract

Environmental economists have long debated whether and how to appropriately integrate distributional concerns into cost benefit analysis. Recent White House guidance instructs U.S. government analysts to weight different groups’ costs and benefits according to their incomes. Groups with incomes below the median would have weights above one, while groups with incomes above the median would have weights below one. We explore the impact of this method. We find that the average weight is above one in a policy-relevant setting. In this example, weighting increases the magnitude of monetized costs and benefits. The average weight varies with the unit of analysis and the choice of unit of analysis can change the sign of the net benefits.