Benefit-cost Analysis (PDF)

Choice is the name of the game. Government sets the size of the public budget and decides which public projects it will invest in and which transfers and regulations it will implement. To do this systematically the government must have a procedure that displays the consequences of the alternatives. This book is an exposition of benefit-cost analysis (BCA), an analytic framework for organizing thoughts, listing the pros and cons of alternatives, and determining values for all relevant factors so that the alternatives can be ranked. A major question illuminated by this text is whether the results of such an analysis can instruct government--in the sense of telling it what it must do to avoid being labelled stupid, corrupt, irrational, and/or inefficient. How and when, we will ask, can the benefit-cost analyst label a particular governmental investment, policy, or regulation as political (in the pejorative sense) as opposed to economic (in the laudatory sense of being economically justified)? This book will argue that BCA is much like a consumer information system. Consumer information neither tells consumers what to do nor tells them what they should want. However, it does tell them which products will perform in selected ways and at what costs. And this information, together with the independently arrived at wants, helps the consumer make intelligent choices.