This paper has examined the theory of non-marginal BCA, and
made two empirical applications to climate change/energy. After defining
non-marginality in terms of the inappropriateness of applying
a first-order Taylor approximation, theoretical expressions for the
error in welfare analysis (in utility and consumption terms) were
developed. The curvature of the utility function (the elasticity of
marginal utility, η) is the source of the error, so the errors are very
small for extremely low η, or extremely high η. However, extreme
values of η are not well supported by the empirical evidence, and
more serious errors are theoretically possible for non-marginal projects
evaluated with intermediate η, for which there is good evidence.
Further, non-marginality creates the possibility of some unusual
counterintuitive results when projects are evaluated in the context
of a growing population. This paper found the conditions under
which an increase in η can increase project NPV, in a setting without
risk or distributional considerations.