A Cost–Benefit Approach
Chapter 8: Cost–Benefit Analysis 201
8. Cost–benefit analysis 201 Looking at whether a little more, or a little less, of an activity is worthwhile is mainly what CBA is about. So a comparison of marginal benefits and marginal costs is the main social decision-making test. However, sometimes the evaluation must switch from looking at the margin to analyzing the effects in terms of totals. Totals are just the sum of the marginal effects. When an activity proceeds only in large jumps (for example, it is not useful to build only half a bridge) an all or nothing evaluation must be carried out. The criterion now for determining whether the activity is worthwhile is whether total benefits exceed total costs. If so, then the project for all the levels is considered worthwhile. The complications that arise for CBA by switching from a marginal to a total emphasis can be appreciated by considering two policy interventions for the one health improvement. Note that now we will be considering situations where MC is falling and not rising as in Figure 7.1 in the previous chapter. Countries in Sub-Saharan Africa where the HIV/AIDS epidemic is at its height are also countries where malaria is rampant. Reducing malaria would therefore help to keep alive those infected with HIV/AIDS. Consider the case where in a community there are ten people (cases) with malaria as depicted in Figure 8.1. There are two main interventions for malaria: prevention and cure (treatment). One way of preventing malaria is to spray areas that are...
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