The Measurement of Costs and Benefits

  • D. W. Pearce
Part of the Studies in Economics book series


Chapters 1 and 2 indicated that the basic CBA rule is that an expenditure is to be judged potentially worth while if its benefits exceed its costs, where benefits and costs are defined to include any welfare gain and loss which occurs because of the expenditure on the project. But ‘cost’ has also to be thought of as opportunity cost, the benefits forgone because of the project in question. In turn, benefits are measured by the (aggregate) willingness to pay (WTP) of the beneficiaries. Expressed in this way, and ignoring the aggregation across many individuals, we can write:
$$ Net\,benefits = WT{P_i} - WT{P_j} $$
where i is the project in question and j is the project ‘forgone’. We wish to know how we can go from this general statement to a more detailed CBA rule.


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Copyright information

© D. W. Pearce 1983

Authors and Affiliations

  • D. W. Pearce
    • 1
  1. 1.Department of Political EconomyUniversity CollegeLondonUK

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