Cost-Benefit Analysis

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Per-Olov Johansson, Bengt Kriström
9,80 MB
Cost-Benefit Analysis.pdf


This Element on cost-benefit analysis provides a summary of recent theoretical and empirical developments and summarizes state-of-the-art stated-preference and revealed-preference valuation methods. The Element discusses how to assess small (or marginal) as well as large (or non-marginal) projects that have a significant impact on prices and/or other economic variables. It also discusses distortions like taxes, market power, and sticky prices. In addition, risk/uncertainty is considered. A novel feature is the elaboration on flexible evaluation rules for reasonably small projects. Conventional point-estimates of projects should be used with care, because they typically give biased results.

A CBA involves a systematic evaluation of the impacts of a regulatory proposal, accounting for all the effects on the community and economy, not just the immediate or direct effects, financial effects or effects on one group. Cost-benefit analysis is defined as an approach to determine the weaknesses and strengths of action in business. It is a decision making concept employed to understand the cost of a given transaction by comparing it with the derived benefits.

It begins with a list, as so many processes do. There's a list of every project expense and what the benefits will be after successfully executing the project. Cost-Benefit analysis might be mistaken for a project budget - The elements involve estimation and deemed quantification; however, there are possibilities that, at some level, the Cost-Benefit Analysis model may be mistaken for a project budget.