Cost-benefit Analysis

Cost-benefit analysis compares incremental consequences of alternatives against a defined baseline and horizon. It considers resource costs, benefits, uncertainty, distribution, and important effects that cannot credibly be monetized.

Cost-benefit analysis compares alternatives against a baseline using consequences over a defined horizon. Incremental costs, opportunity costs, ongoing burdens, and who experiences each effect matter. Counting every expenditure as a social cost can be mistaken when a payment is a transfer within the chosen boundary, while excluding maintenance can make an option look deceptively cheap.

A common monetary scale can aid comparison without resolving every value judgment. Unmonetized effects, distribution, feasibility, and uncertainty should remain visible. Use sensitivity or break-even analysis to show which assumptions drive the choice rather than conceal a contested valuation inside one precise net-benefit figure.

When to use it

When analyzing data; when building predictive models; when evaluating statistical claims; when quantifying uncertainty.

How it can help

Define the comparison, identify consequential effects without double counting, quantify defensible values, and test assumptions. Keep unmonetized and distributional consequences visible.