Economic Analysis II: Introduction to Cost Benefit Analysis

Cost-benefit analysis (CBA) is the primary tool used to provide quantitative evidence to inform public policy decisions. Ideally, CBA will improve the efficiency of public policy by identifying public policies/projects that create the most “value” for society. The concept of CBA is easily understood. For any project/policy under consideration (versus current state of the world), do the following: add up all of the current and future monetary costs of the project/policy; add up all of the current and future monetary benefits of the project/policy; and then compare the benefits to costs. If benefits are greater than costs, then the project/policy is candidate to be implemented. Seems straightforward, right? Conceptually it is pretty straightforward, although there are some thorny theoretical and philosophical issues that arise. The conceptual difficulties, while important, are few in comparison, however, to the practical difficulties associated with conducting a CBA. I can think of few other issues that merit the characterization “the devil is in the details” more than CBA. In this course, we will review the theoretical/conceptual foundations of CBA as applied in the public sector. We will also review some of the philosophical issues central to the validity of CBA and practical difficulties in conducting CBA. Ideally, the course will provide a foundation to be an astute consumer of CBA and a beginner producer of CBAs. This course is part of the Evening Master's Program (EMP).