The Discipline of Cost-Benefit Analysis

Cost-benefit analysis is a general discipline, based on the use of some foundational principles, which are not altogether controversial, but have nevertheless considered plausibility. Divisiveness increases as various additional requirements are imposed. There is a trade-off here between easier usability (through locked-up formulae) and more general acceptability (through allowing parametric variations). The paper examines and scrutinizes the merits and demerits of these additional requirements. The particular variant of cost-benefit approach that is most commonly used now is, in fact, extraordinarily limited, because of its insistence on doing the valuation entirely through an analogy with the market mechanism. This admits only a narrow class of values, and demands that individuals be unconcerned about many substantial variations, ignored in the procedure of market valuation. The use, instead, of a general social choice approach can allow greater freedom of valuation and can also accommodate more informational inputs. Copyright 2000 by the University of Chicago.