cost-benefit analysis
Cost-benefit analysis (CBA) is “a policy assessment method that quantifies in monetary terms the value of all consequences of a policy to all members of society”
Prospective cost-benefit analysis
Ex ante CBA. Would this project/policy be a good idea?
Retrospective cost-benefit analysis
Ex post CBA. Was this project/policy a good idea?
In media res cost-benefit analysis
Is continuation of this project/policy a good idea?
Comparative cost-benefit analysis
e.g. of ex ante and ex post CBAs; How different were our earlier and later assessments regarding whether this project/policy was a good idea?
(someone who has) standing
Who has standing i.e. whose benefits and costs should be counted in the CBA?
positive/negative net social benefit
The key output of a CBA is the net social benefit of a project/policy. This is calculated by subtracting the social costs of a project/policy from the social benefits of a project/policy; A numerical figure calculated by subtracting the expected social costs of a policy from the expected social benefits. If a policy has positive net social benefits, then it is possible to find a set of transfers or “side payments” that makes at least one person better off without making anyone else worse off
discounting (benefits and costs) to obtain present values
How can we determine the present value of future benefits and costs?
pareto efficient
An allocation of goods is Pareto efficient if no alternative allocation can make at least one person better off without making anyone else worse off
(potential for) pareto improvement
There exists at least one allocation of goods different from the status quo which makes at least one person better off without making anyone else worse off. Moving to this alternative allocation represents a pareto improvement
willingness-to-pay/willingness-to-accept
A measure of how much an individual is disposed to pay for a policy they want to have implemented or how much an individual is disposed to receive in order to be compensated for an undesired policy going ahead
opportunity cost
The opportunity cost of using an input to implement a policy is its value in its best alternative use. Opportunity cost measures the value of what a society must forgo to use the input to implement the policy
Kaldor-Hicks criterion
A policy should be adopted if and only if those who will gain could fully compensate those who will lose and still be better off
Potential Pareto efficiency rule/net benefits criterion
Adopt only policies that have positive net social benefits. Note: As long as net benefits are positive, it is at least possible that losers can be compensated so that the policy can be Pareto improving
