At Scioto Analysis, we are doing a multi-year project where we are demonstrating how a good cost-benefit analysis is conducted.
As part of this series, we have conducted cost-benefit analyses on the state Earned Income Tax Credit, school closings for COVID-19, AmeriCorps, urban canopy programs, water quality programs, an Ohio child tax credit, legalization of medical marijuana, and daylight saving time. We are currently conducting a cost-benefit analysis of a minimum wage increase for Ohio.
We also are members of the Society for Benefit-Cost Analysis, the international association of analysts across the public, private, and academic sectors working to improve the theory and practice of benefit-cost analysis and support evidence-based policy decisions.
That’s not a typo: we conduct “cost-benefit analysis” and are members of the Society for “Benefit-Cost Analysis.”
So what is the difference between “cost-benefit analysis” and “benefit-cost analysis?”
Nothing.
These two phrases are used interchangeably in the world of cost-benefit analysis and are often used by different people, but refer to the same phenomenon.
The main differences between the two phrases are where they are used. “Benefit-cost analysis” is common in academia and in federal regulatory decision making. “Cost-benefit analysis” is more common outside of these sectors in the United States and in non-U.S. contexts.
But why do two phrases refer to the same practice? Below are some of the explanations I have heard over the years. I will be clear: I can’t vouch for any of these. I don’t know how true any one of these are, but they have nonetheless been offered to me as explanations for why people say “benefit-cost analysis.”
To represent “professionalized” practice
One explanation relayed to me by my colleague Michael Hartnett from the most recent Society for Benefit-Cost Analysis conference was that cost-benefit analysis had a push for mainstream acceptance in the 1970s, before Ronald Reagan required cost-benefit analysis of all federal regulations. Economists were trying to standardize the practice and promote it as a systematic form of applied economic analysis. In order to differentiate the practice from more sophisticated approaches to evaluating policy, “benefit-cost analysis” was put forth as a way to refer to the systematic practice.
To emphasize the importance of benefits
“Cost-benefit analysis” seems to focus on costs before benefits because…it comes first in the phrase. By placing the word “benefit” first, “benefit-cost analysis” assuages the fear of people who think conducting this analysis is overly focused on costs policy to the detriment of its benefits.
This explanation sounds a little silly, but it does fit with some worries people have. The loudest voices against cost-benefit analysis are often advocates who are afraid costs of policies they champion will outweigh their benefits. This theory is that by placing benefits first, those people will have their fears assuaged.
To reflect the formula of “benefits minus cost”
The central formula of cost-benefit analysis is calculation of net present value, or
Present Benefits - Present Costs = Net Present Value
By placing “benefit” first in the phrase, we capture that central formula in the technique. This explanation is similar to the previous one: it is about trying to get people to understand how the system works. Seems a little weak for the confusion created, though.
Linguistic cadence
This is an especially interesting one: that the phrase “cost-benefit analysis” rolls off the tongue better than “benefit-cost analysis,” so “cost-benefit analysis” will persist no matter how much people try to get others to use the latter. The argument has to do with word emphasis within the phrase. I don’t know how true this is, but it is interesting.
Overall, the battle between “benefit-cost analysis” and “cost-benefit analysis” seems a lot like the battle between the phrases “this data” and “these data,” classic linguistic squabbling, sometimes between elites and mundane use, rarely important. While I will not be soon to give up my membership at the Society for Benefit-Cost Analysis, we’ll probably continue using “cost-benefit analysis.” Why? Because that’s what policymakers tend to use, and we’d rather have them understanding the analysis than reading articles like this.