Cost Benefit Analysis

Why?

Help rank projects/policies

Don't do anything 'silly'

Think before implementing something
that only applies to small group

3 approaches

Benefit cost ratio (B/C)

Internal rate of return (IRR)

Net present value (NPV)

How?

Identify consequences - time order and monetary values

Identify costs and benefits

Define project

Adjust C's and B's using weights

Discount to obtain NPV

Sensitivity analysis

Key concepts

Income distribution

Externalities

Time preference

Shadow prices