Cost-Benefit Analysis: Foundations and Applications

This lecture introduces the concept of cost-benefit analysis (CBA) and its historical development. It covers alternative public decision rules, the theoretical foundations of CBA, and its limitations. The instructor discusses the principles of CBA, including the justification, purpose, and quantification of benefits and costs. The lecture also explores informal CBA examples and the potential frontier for splitting resources. Additionally, it delves into the decision rules for CBA, such as Pareto efficiency and the Hicks-Kaldor Criterion. The limitations of CBA, including human-centered assessment and the need to express all costs and benefits in monetary terms, are highlighted. The lecture concludes by emphasizing the importance of CBA in informing public policy debates and the challenges politicians may face in implementing CBA.