The Effectiveness of Social Cost Benefit Analysis

Cost-benefit analysis seeks to translate all relevant considerations into monetary terms. Economists monetize both the costs of regulation, such as the money spent to install a scrubber on a power plant to reduce air pollution and the benefits of regulation, such as saving human lives and preventing disease. When benefits of regulation will happen in the future, the economists first quantify those benefits in dollars. Then they discount their value to reflect how much we would have to invest today to have that much money when the benefit is delivered.Cost-benefit analysis sets out to do for government what the market does for business: add up the benefits of public policy and compare them to the costs. The two sides of the ledger, however, raise very different issues.Comment: On the basis of the above statements, we can now understand the extent of the use of the CBA. It is being used by both the government and business sectors for decision making because of market forces. Ackerman and Heinzerling (2005), however, raise concerns of the application of the CBA, which is the subject inquiry of this paper. Hence in the following discussion, we will be evaluating the advantages and disadvantages of CBA and the validity of the criticisms on the advantages. But before doing that, let us first understand the steps inDiscounting is a procedure developed by economists to evaluate investments that produce future income. The case for discounting begins with the observation that $100, say, received today is worth more than $100 received next year, even in the absence of inflation. For one thing, you could put your money in the banktoday and earn a little interest by next year. Suppose that your bank account earns 3 percent interest. In that case, if you received the $100 today rather than next year, you would earn $3 in interest, giving you a total of $103 next year.