Cost-Benefit Analysis

Should Malaysia build a new steel mill, or New York City an urban motorway? Should higher education expand, or water supplies be improved? These are typical questions to which cost-benefit analysis, the key economic toolВ for analyzing problems of social choice can contribute to,В as well as providing a useful vehicle for understanding the practical value of welfare economics. This invaluable textВ covers the main problems that arise in a typical cost-benefit exercise. Cost-benefit analysis is used everywhere, but its techniques are particularly prominent in fields where there is some kind of ethical dimension.В For this edition, E.J. Mishan has been joined by Euston Quah, to explore new themes,В including the impact ofВ uncertainty on cost-benefit analysis and toВ introduce a host of new and up-to-date case studies. Book Cover......Page 1 Title......Page 4 Copyright......Page 5 Contents......Page 6 Preface to the fifth edition......Page 10 Part I: Scope and method......Page 14 1 Introductory remarks......Page 16 2 Cost-effective analysis......Page 21 3 Proposals for weighting money valuations......Page 24 Part II: Basic concepts of benefits and costs......Page 34 4 Measurements of consumer surplus......Page 36 5 Consumer surplus when several prices change......Page 45 6 Consumer surplus when other things change......Page 52 7 Introduction to the compensating variation......Page 58 8 Measurements of rent......Page 62 9 Is producer surplus a rent?......Page 68 Part III: Shadow prices and transfer payments......Page 72 10 Introductory remarks......Page 74 11 Opportunity cost of labour......Page 77 12 Opportunity cost of unemployed labour......Page 82 13 The additional benefits of using unemployed labour......Page 85 14 The opportunity costs of imports......Page 89 15 Transfer payments and double counting......Page 94 Part IV: External effects......Page 98 16 Introduction to external effects......Page 100 17 Adverse spillovers: The complacent view......Page 107 18 Internalizing externalities......Page 112 19 Evaluating spillovers......Page 117 20 Compensating for environmental damage......Page 124 Part V: Investment criteria......Page 132 21 Introduction to investment criteria......Page 134 22 Crude investment criteria......Page 138 23 The discounted present value criterion......Page 142 24 The internal rate of return......Page 148 25 The alleged superiority of the discounted present value criterion compared with the internal rate of return criterion......Page 152 26 Investment criteria in an ideal capital market......Page 160 27 Calculation of rates of return and of time preference......Page 162 28 Critique of the discounted present value criterion (I)......Page 166 29 Critique of the discounted present value criterion (II)......Page 171 30 The normalized compounded terminal value criterion (I)......Page 175 31 The normalized compounded terminal value criterion (II)......Page 180 32 The Pareto criterion and generational time......Page 184 Part VI: Notes on particular goods......Page 190 33 The value of time saved......Page 192 34 Measuring the benefits of recreational areas (I)......Page 196 35 Measuring the benefits of recreational areas (II)......Page 202 36 The value of life......Page 207 Part VII: Uncertainty......Page 216 37 Risk and certainty equivalence......Page 218 38 Game theory and decision rules (I)......Page 221 39 Game theory and decision rules (II)......Page 225 40 How practical are game theory decision techniques?......Page 231 41 Simple probability in decision making......Page 234 42 Mixed strategies in decision making......Page 237 43 Four additional strategems for coping with uncertainty......Page 241 Part VIII: Further notes......Page 250 44 A summing up......Page 252 Appendix 1: Brief historical background to CBA......Page 256 Appendix 2: The normative interpretation of a CBA......Page 258 Appendix 3: The alleged contradiction of the Kaldor–Hicks criterion......Page 260 Appendix 4: The problem of second-best......Page 264 Appendix 5: Origins of the Hicksian measures of consumer surplus......Page 268 Appendix 6: Marginal curve measures of consumer surplus......Page 273 Appendix 7: The concept and measure of rent......Page 280 Appendix 8: Marginal curve measures of rent......Page 285 Appendix 9: The limited applicability of property rights......Page 290 Appendix 10: The rate of time preference......Page 292 Appendix 11: Selecting a set of investment projects for given political objectives......Page 295 Appendix 12: The value of human life......Page 299 Appendix 13: Deadweight loss or love’s labour lost......Page 301 Appendix 14: CBA and the problem of locating environmentally noxious facilities – an informal discussion......Page 305 Bibliography and further reading......Page 315 Index......Page 324 "Cost-benefit analysis (CBA) is the systematic and analytical process of comparing benefits and costs in evaluating the desirability of a project or programme - often of a social nature. It attempts to answer such questions as whether a proposed project is worthwhile, the optimal scale of a proposed project, and the relevant constraints. CBA is fundamental to government decision making and is established as a formal technique for making informed decisions on the use of society's scarce resources. This timely 6th edition of the classic Cost-Benefit Analysis text continues to build on the successful approach of previous editions, with lucid explanation of key ideas, simple but effective expository short chapters, and an appendix on various useful statistical and mathematical concepts and derivatives. The book examines important developments in the discipline, with relevant examples and illustrations as well as new and expanded chapters which build upon standard materials on CBA. Highlights include; updated historical background of CBA, extended non-market goods valuation methods, the impact of uncertainty, evaluation of programmes and services, behavioural economics, decision rules and heuristics, CBA and regulatory reforms CBA in developed and developing countries value of household production, other topics frequently encountered in CBA, such as costs of diseases and air pollution, and value of statistical life. This book is a valuable source and guide to international funding agencies, governments, interested professional economists and senior undergraduate and graduate students. The text is fully supported by a companion website, which includes discussion questions and PowerPoint slides for each chapter"-- Provided by publisher This work discusses the typical questions to which cost-benefit analysis, the key economic tool for analysing problems of social choice, can contribute. It also provides a useful vehicle for understanding the practical value of welfare economics Investigating cost-benefit analysis (the key economic tool for analyzing problems of social choice), this invaluable text covers the main problems arising in a typical cost-benefit exercize, exploring new themes ... For this edition, E.J. Mishan has been joined by Euston Quah of Nanyang Technological University. New themes explored include the impact of uncertainty on cost-benefit analysis