Cost Benefit Analysis: The Principles

Abstract

Value for money is most definitely in vogue — if not yet fully in practice then in exhortation. The search for ‘value for money’ (or ‘cost effectiveness’ or ‘efficiency’) is being conducted at all levels of government and from a number of different perspectives. All such searches are special cases of cost benefit analysis. In the last chapter we saw how the pursuit of final output and opportunity cost measures would logically take us to a position where either cost benefit analysis or cost effectiveness analysis was not only feasible but desirable. This desirability stemmed not from the supposed intention to reduce everything to monetary terms (which is most certainly not the aim) but from the careful and comprehensive use of the principles of the production of welfare model. In this and the next chapter I want to focus attention on cost benefit analysis, looking first at the principles. I shall use the term cost benefit analysis and its common abbreviation (CBA) as a shorthand term for the cumbersome expression ‘cost benefit analysis or cost effectiveness analysis’, since the majority of the principles are shared by both.