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Like the 19th-century voyager, the modern engineer prizes redundancy, in the form of backup and failsafe mechanisms (most would consider the standard triplicate provision to be adequate). Economists, however, privilege efficiency over redundancy an approach that, despite its obvious merits, also has shortcomings.When it comes to investment decisions, economists focus on the most efficient use of resources, as revealed by cost-benefit analysis.Efficiency isn't everything, and the long-term benefits of an investment are not always clear from the start.Part of the challenge in assessing major or (potentially) iconic investment projects is that standard cost-benefit analysis does not work for projects that are likely to change significantly the economy's growth rate, as the Erie Canal did, by stimulating trade.Economists should recognize the limitations of cost-benefit analysis and offer a more rigorous method for analyzing the nonmarginal, nonlinear feedback mechanisms that affect major investments. More broadly, efficiency cannot be the sole criterion for organizing the economy.
Three cheers for the economic
benefits of regulation!
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