The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Cost–Benefit Analysis

  • David L. Weimer
Reference work entry


Cost–benefit analysis (CBA) is a collection of methods and rules for assessing the social costs and benefits of alternative public policies. It promotes efficiency by identifying the set of feasible projects that would yield the largest positive net benefits to society. The willingness of people to pay to gain or avoid policy impacts is the guiding principle for measuring benefits. Opportunity cost is the guiding principle for measuring costs. CBA requires that appropriate shadow prices be derived when policies have effects beyond those that can be taken into account as changes of prices or quantities in undistorted markets.


Consumer surplus Contingent valuation Cost–benefit analysis Distortions Donor value Equivalent variation Hicks compensation Hicks, John R. Kaldor, N. Marshallian demand curves Opportunity cost Option price Present value Pure time preference Revealed preference Shadow prices Social choice Social surplus Substitutes and complements Travel-cost method Value of statistical life Willingness to pay 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • David L. Weimer
    • 1
  1. 1.