Dear researchers,
Is it possible to consider Cost-Benefit Analysis (CBA) as a suitable form of robustness check in econometric analysis, taking into account its effectiveness in assessing the resilience and reliability of the findings?
There are lots of methods to check the robustness in a regression, like changing the key variables, using another econometric methods, etc. However, is it possible to use the results calculated by CBA to prove the results induced by econometric analysis? The results of CBA could be some additional evidence to defend the conclusion of econometrics.
CBA can be used as a form of robustness check in econometric analysis, but it has some limitations and challenges.
One way that CBA can be used as a robustness check is to compare the estimated benefits of a policy or intervention based on econometric methods with the actual or expected benefits measured by CBA. For example, if an econometric analysis estimates that a certain energy efficiency program reduces greenhouse gas emissions by a certain amount, then CBA can be used to calculate the monetary value of the avoided environmental damages and compare it with the cost of the program. If the CBA results are consistent with the econometric estimates, then this can provide some evidence for the validity and reliability of the econometric findings.
Another way that CBA can be used as a robustness check is to test the sensitivity of the econometric results to different assumptions or scenarios. For example, if an econometric analysis relies on some causal assumptions or identification strategies, then CBA can be used to examine how the estimated effects change under different counterfactuals or alternative policies. This can help to assess the plausibility and generalizability of the econometric findings.
However, CBA also has some limitations and challenges that may limit its usefulness as a robustness check in econometric analysis. Some of these are:
CBA requires estimating the monetary values of all relevant costs and benefits, which may not be easy or feasible for some outcomes or impacts. For example, how to measure and monetize the value of human lives, health, happiness, or social justice?
CBA may not capture all the relevant costs and benefits of a project or policy, especially those that are intangible, indirect, or long-term. For example, how to account for the spillover effects, behavioral changes, or dynamic feedbacks of a policy intervention?
CBA may be subject to various sources of uncertainty and bias, such as data quality, measurement errors, parameter estimation, discounting, distributional effects, and ethical judgments. For example, how to choose an appropriate discount rate, social welfare function, or equity criterion?
Therefore, CBA can be a useful tool for complementing and validating econometric analysis, but it should not be considered as a definitive or conclusive form of robustness check. It is important to acknowledge the limitations and challenges of both methods and use them with caution and transparency.
Emad Ghadiri Thank your for your prompt reply, and offering such a high-quality answer for this question!
Yes, it can be an appropriate form as a robustness check, but it has limitations such as quantifying all the costs and benefits of a project or policy, particularly those that are intangible or difficult to measure.
Prof. Chuck A Arize, Thank your for your accurate and high-quality answer/summarize for this question!