Time, Discounting and Decision Rules

Abstract

Chapter 3 concluded with a ‘timeless’ CBA formula which indicated that any project in which the benefits exceed the costs is a potentially ‘good’ project. The qualifications are (a) that the benefits and costs must be valued at shadow prices unless we have reason to believe that the error involved in not using shadow prices is small; (b) all costs and benefits, to whomsoever they accrue, must be accounted for; (c) the rule as formulated is indifferent between who receives the benefits and who suffers the costs (a matter we take up in Chapter 5); and (d) the excess of benefits over costs does not mean that the project should be undertaken. With respect to point (d) we shall see later that the introduction of a budget entails that we must have some ranking procedure.