Cost–benefit analysis and ‘next best’ methods to evaluate the efficiency of social policies: As in pitching horseshoes, closeness matters

Many policymakers are unwilling, or think that it is infeasible, to perform comprehensive cost–benefit analysis (CBA) of programmes in social policy arenas. What principles actually underlie CBA? An understanding is necessary to assess whether other evaluation methods are close enough to CBA to provide useful information on social efficiency. This paper explains five underlying CBA principles and the challenges in applying them to social policy arenas. It assesses a number of ‘less‐than comprehensive’ versions of CBA and analyses their ‘closeness’ to comprehensive CBA and, thus, their value as assessments of changes in social efficiency. We show some types of analysis are not close enough and explain why. We provide a taxonomy of these methods in terms of their comprehensiveness with respect to both social costs and benefits. We also argue that an analysis should provide a clear normative basis for its geographic scope in order to claim it assesses economic efficiency.