Legitimate and illegitimate transfers: Dealing with “political” cost-benefit analysis

Abstract

In this journal, McChesney engaged Lewin and Trumbell in a debate concerning the reasons why criminal “gains” are excluded in a cost-benefit analysis off investment in maintaining law and order. 1 Theft might be perceived as a mechanism for transferring property (so that loss to victims appears offset by “gain” to criminals). However, criminal “gains” can be excluded from CBA simply on the grounds that they arise from illicit activity or, following McChesney, because the “gains” are offset, in total, by the rent-seeking costs involved in securing the transfer. 2 The appropriate rationale remains an issue of debate, but the debate is one that has broader currency than has been noted to date. In this paper McChesney's argument is extended to explain why legitimate “gains” from public sector investment are typically ignored in CBA. Public choice literature identifies the different ways in which actors in the political process acquire rents at the expense of voter-taxpayers. 3 For example, public spending may increase salary and improve working conditions of bureaucrats 4 or it may enhance politicians' career prospects. 5 Such gains are excluded from a CBA although they need not be illicit. The questions posed in the following sections of this paper are: (1) Why is this so? (2) Can all of such “gains” be excluded? and (3) Is there a case for constructing a CBA (or “political” CBA) that would include them?