This project is under development.
Comments are welcome and can be sent to Dave Bjornstad.
Cost-Benefit Analysis
As environmental issues grow in complexity and pressures increase for localities to
remain fiscally sound in the face of increasing responsibilities, cost-benefit analysis offers local
decision makers a potentially potent source of counsel. This decision support tool provides a
format for enumerating the range of benefits and costs surrounding a decision, aggregating the
affects over time using an approach called discounting, and arriving at a dollar-denominated
"present value" that, in concept, is comparable with other governmental uses for scarce financial
resources, including leaving them in the hands of taxpayers.
In simple terms, cost-benefit analysis imposes an accounting framework that prescribes
classes of benefits and costs to consider, means to measure them, and approaches for
aggregating them. Key parameters, like the rate at which to discount, are highlighted, and
ways to recognize inherent uncertainties are supplied, as are ways to deal with uncertainties.
Even though the approach originated as an analogy to private studies of investment, and thus to
calculate a "go-no-go" decision, the technique is flexible and can be used to choose among a
range of alternatives, to make comparable projects of differing lengths, and to identify
instances where costs and benefits place identifiable groups at special advantage or
disadvantage. Given these attributes, there is little wonder that pressures to apply the technique
to important decisions are growing.
Of course, no tool is perfect, and cost-benefit analysis suffers from many criticisms.
These result from the rudimentary techniques used to measure diverse benefits and costs in dollar terms, the equity concerns left unrecognized in the present
value calculation, and the fact that, to some, environmental concerns fall properly under the realm
of ethics, rather than economics.
Nevertheless, the cost-benefit methodology shines a light brightly on "efficiency
attributes" attendant to environmental decision making--namely the tasks that could be
accomplished if the specific project, program, or activity under consideration were foregone.
Whether viewed as a means to organize the decision making process or a way to optimize it,
cost-benefit analysis imposes a strict template on the economic foundations of decision making
and causes at least a portion of the debate to focus on tradeoffs, alternatives, and opportunities
given up. But all of this comes at a price. The technique is difficult, specialized and costly to
apply. Adapting it to issues of moderate size and to agencies with modest resources, as are found
at the sub-national level, provides a significant challenge, while offering marked rewards.
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