Edited by Larry Dwyer, Alison Gill and Neelu Seetaram
Chapter 14: Cost-Benefit Analysis
14 Cost–benefit analysis Larry Dwyer INTRODUCTION Decision makers need a consistent basis for assessing competing proposals and to be fully informed about the implications of using economic resources. The public sector is a major user of a destination’s available resources and, as such, should ensure that it makes a significant positive contribution to the economy and society. More particularly, no new proposal, programme, project or policy should be adopted without first answering questions such as: ● ● ● ● ● What are the specific outcomes sought? Do the gains to people exceed the costs the sacrifices required? Are there better ways to achieve these outcomes? Are there better uses for these resources? Is this an appropriate area of responsibility for government? The primary technique that should be used for the economic appraisal of actions or proposals in terms of economic efficiency is Cost–Benefit Analysis (CBA). CBA is a systematic process for identifying and assessing all costs and benefits of a policy, project or programme in monetary terms, including those costs and benefits not usually represented by dollar values, and then subtracting the costs from the benefits to show the estimated net effect of that activity. Future costs and benefits are discounted relative to present costs and benefits in a net present value sum. The policy or project is deemed to be socially acceptable if the sum of the benefits to society (including private and social benefits) exceeds the sum of the costs to society (including private and social costs). CBA is the most...
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