Cost–Benefit Analysis

Provides a summary of recent developments and summarizes state-of-the-art stated-preference and revealed-preference valuation methods.

Per-Olov Johansson (Author), Bengt Kriström (Author)

9781108462938, Cambridge University Press

Paperback / softback, published 24 May 2018

100 pages, 7 b/w illus.
22.9 x 15.1 x 0.6 cm, 0.16 kg

'The authors' ability to address classic topics in a simple illustrative manner that nevertheless leads to very penetrating conclusions is the mark of their deep understanding of the matter. … [T]he authors demonstrate an enviable ability to explain concepts and mechanisms with very simple sentences and examples. They do not hesitate to return to the definition of rather basic concepts, such as externalities, or public goods, using enlightening illustrations. They introduce more refined concepts with short sentences. I was especially struck by their elegant and concise way of introducing risk: 'In order to be able to say anything meaningful about attitudes toward risk we must assume that the utility function is concave or convex. Concavity or convexity of a function is a cardinal property. Therefore we now leave the ordinal world …'' Emile Quinet, Society for Benefit-Cost Analysis (benefitcostanalysis.org)

This Element on cost-benefit analysis provides a summary of recent theoretical and empirical developments and summarizes state-of-the-art stated-preference and revealed-preference valuation methods. The Element discusses how to assess small (or marginal) as well as large (or non-marginal) projects that have a significant impact on prices and/or other economic variables. It also discusses distortions like taxes, market power, and sticky prices. In addition, risk/uncertainty is considered. A novel feature is the elaboration on flexible evaluation rules for reasonably small projects. Conventional point-estimates of projects should be used with care, because they typically give biased results.

Subject Areas: Political economy [KCP], Microeconomics [KCC], Economics [KC]