The Origins of CBA

Abstract

Whilst the underlying theory of cost-benefit can be traced back to the welfare economics of the nineteenth century (see Section 3 below), the first practical embodiment of the net benefit maximand occurred in various pieces of United States legislation on water resources in the 1930s. The Flood Control Act of 1936 established ‘the principle of comparing benefits to whomsoever they may accrue with the estimated costs’, thus indicating clearly the social nature of the public investment decision. The precise meaning of a ‘benefit’ remained obscure, however, and the various U.S. agencies responsible for water resource projects frequently used diverse and loosely defined benefit-cost criteria. The first real attempt to instil order into the various practices was in the celebrated Green Book of 1950, produced by the Federal Inter-Agency River Basin Committee. This was quickly followed by another attempt at formalisation in the Bureau of Budget’s Budget Circular A-47 of 1952. Academic interest in these criteria was also growing and a number of critical comments appeared in journals throughout the 1950s. But the real turning-point came in 1958 with the simultaneous publication of works by Eckstein [13], McKean [14] and Krutilla and Eckstein [15].