Teaching Benefit-Cost Analysis, Tools of the Trade
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| Year of publication | 2019 |
| MU Faculty or unit | |
| Citation | |
| Description | Cost-benefit analysis (also referred to as Benefit-cost analysis, or CBA) is one of the basic techniques for evaluating investment projects. The cost-benefit analysis extends the current financial evaluation of the project to include all socio-economic (social) impacts of the project (externalities). The difference between the financial and socio-economic evaluation of the project can be illustrated on the example of a playground. While spending on the construction and operation of the playground is part of the financial analysis, the socio-economic analysis extends the evaluation results to the benefit of parents with children who will use the playground. All impacts need to be quantified for evaluation purposes.The so-called shadow prices are used for valuation of items for which market prices are not available (eg the mentioned benefit of parents with children). For example, substitution markets, willingness to pay, willingness to receive compensation, etc. can be used to determine shadow prices. The article is a review of a book dedicated to teaching CBA. |
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