Wednesday, February 23, 2011

COST BENEFIT ANALYSIS AND SOCIAL COST BENEFIT ANALYSIS


Cost benefit analysis is an analytic framework for organizing thoughts, listing the pros and cons of alternatives and determining values for all relevant factors so that the alternatives can be ranked.
When Cost benefit analysis is conducted for individual / private firm or project it is called simply (financial or commercial) cost benefit analysis but when it is conducted for public utility (generally by government) it is called social cost benefit analysis.
Social cost benefit analysis can instruct government in the sense of telling it what it must do to avoid being labeled stupid, corrupt, irrational and / or inefficient. Cost benefit analysis is much like a consumer information system which neither tells consumer what to do not tells them what they should want. However, it does tell them which products will perform in selected ways and at what costs. This helps consumer to make intelligent choices.

Similarly, informed Cost benefit analysis cannot tell government what public projects to fund. They can provide an information system that illuminates and informs the decision making process and implements chosen objectives and facilitates public monitoring for consistency with objectives, even occasionally encouraging these objectives to be rethought. This adoption involves a dear understanding of the division of labor between analyst and government. Cost benefit analysis helps to differentiate in particular between questions involving government matters for which the analyst must obtain answers from the political system and questions involving government matters for which the analyst must obtain answers from the political system and questions that involve technical matters to be solved within the discipline of economics.

No comments:

Post a Comment