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Cost Benefit Analysis

Cost-benefit analysis is an economic technique used to quantify and compare the costs and benefits of a policy or project for society. It monetizes benefits so that different types can be compared and aggregated with costs. The policy should be implemented if social benefits outweigh costs. CBA also recommends choosing the alternative with the largest net benefits, defined as benefits minus costs, and determines the optimal size that maximizes net benefits. However, CBA is partially subjective, ignores benefit distribution, treats intergenerational equity simply, and accurately estimating all social costs and benefits can be very costly.

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30 views1 page

Cost Benefit Analysis

Cost-benefit analysis is an economic technique used to quantify and compare the costs and benefits of a policy or project for society. It monetizes benefits so that different types can be compared and aggregated with costs. The policy should be implemented if social benefits outweigh costs. CBA also recommends choosing the alternative with the largest net benefits, defined as benefits minus costs, and determines the optimal size that maximizes net benefits. However, CBA is partially subjective, ignores benefit distribution, treats intergenerational equity simply, and accurately estimating all social costs and benefits can be very costly.

Uploaded by

Romaisah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cost−benefit analysis

Cost−benefit analysis (CBA) is an economic technique applied to public decision−making that


attempts to quantify and compare the advantages (benefits) and disadvantages (costs) associated
with a particular project or policy for society as a whole. The appeal of CBA is that by monetising the
benefits of the policy, it is possible to compare and/or aggregate many different categories of
benefits with one another, and with the costs of the policy. When the social benefits outweigh the
costs, the policy should be implemented. 

When a number of alternative policies or programs are being examined, CBA would recommend
choosing the one with the largest net benefits, where net benefits are defined as the benefits minus
the costs. The estimation of costs and benefits also allows one to determine the socially optimal size
of the program or project, i.e., the one that maximises net benefits.

Concerns with respect to the application of CBA include its partially subjective nature, its lack of
concern for the distribution of the achieved benefits, its treatment of intergenerational equity, and the
difficulty of accurately estimating all social costs and benefits, which might make the actual conduct
of a fully comprehensive CBA a very costly business. 

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