CostBenefit Analysis

AY2024/2025 Semester 2

Cost benefit analysis is concerned with the theory and application of criteria for public investment decision-making. The purpose of this course is to develop an understanding of the principles of cost benefit analysis and to indicate the usefulness and limitations of the method by way of project evaluations and other varied examples on its implementation. Questions such as what costs and benefi ts are to be counted, what alternative investment decision criteria exist besides the popular discounted cash flow method, how do we appraise projects under conditions of uncertainty, and what could be done about distributional considerations? The problem of including non-market goods and their valuation is also highlighted and discussed in this course. Commodities such as scenic views, human life, time, environmental externalities, and recreation which are not exchanged explicitly in the market require shadow-efficiency prices for inclusion into cost benefit analysis. Exercises and cases involving real and simulated cost benefit studies will be given where appropriate.