This essay is meant to give a brief overview of Cost-benefits-Analysis as part of public economics and should discuss especially the distribution of gains and losses caused by a public project. Economic methods of nearly exact estimation of particularly intangible, but also tangible elements and the examinations of market failures, which are intentionally left out.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Background and context of Cost-Benefit-Analysis
- Principles and fundamentals of CBA
- Role of the discount factor as a critical issue
- Net Present Value, Internal Rate of Return and Benefit-Cost-Ratios as criterions
- Measurement of cost and benefits
- Distribution of costs and benefits
- Conclusion and evaluation
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay aims to provide a concise overview of Cost-Benefit-Analysis within public economics, specifically addressing the distribution of gains and losses resulting from public projects. It delves into the economic methods of estimating both tangible and intangible elements, while acknowledging the limitations in addressing market failures.
- The role of Cost-Benefit-Analysis in public economics and its application in resource allocation.
- The principles and fundamentals of Cost-Benefit-Analysis, including the importance of discounting and the use of specific criteria for decision-making.
- Challenges in measuring costs and benefits, particularly for non-marketed goods and intangible elements.
- The significance of considering the distribution of costs and benefits, exploring different approaches to evaluate social welfare.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the concept of Cost-Benefit-Analysis (CBA) and highlights its relevance in public economics, particularly in evaluating the distribution of gains and losses from public projects. It emphasizes the challenges in accurately estimating tangible and intangible elements, as well as the limitations in addressing market failures.
- Background and context of Cost-Benefit-Analysis: This chapter explains the role of government in public economics, including its regulatory functions and project management. It emphasizes the need for efficient resource allocation to maximize social welfare and introduces CBA as a systematic tool for evaluating project feasibility and justifying post-project actions. The chapter discusses the broader application of CBA in public policy compared to financial analysis in the private sector.
- Principles and fundamentals of CBA: This chapter delves into the core principles of CBA, focusing on analyzing resource allocation changes brought about by projects. It explores the concept of comparing total benefits and costs over time to determine social welfare. The chapter further elaborates on the role of discounting due to time preference and capital productivity, highlighting the significance and complexity of choosing an appropriate discount factor.
- Role of the discount factor as a critical issue: This section emphasizes the critical role of discounting in CBA due to time preference and capital productivity. It explains the concept of discounting and the implications of choosing a discount factor for project decisions.
- Net Present Value, Internal Rate of Return and Benefit-Cost-Ratios as criterions: This section discusses key decision-making criteria in CBA: Net Present Value (NPV), Internal Rate of Return, and Benefit-Cost-Ratio. It outlines the use of these criteria for project selection and prioritization.
- Measurement of cost and benefits: This section focuses on the measurement of costs and benefits in CBA, emphasizing the challenges of evaluating non-marketed goods and intangible elements. It explains the use of shadow prices and different methods like revealed preference and stated preference for estimating economic values.
- Distribution of costs and benefits: This section addresses the importance of considering the distribution of costs and benefits in CBA, highlighting the uneven impact of projects on different groups of society. It delves into the concept of Pareto improvement and introduces the Potential Pareto Improvements (PPI) as a more practical approach to evaluating social welfare.
Schlüsselwörter (Keywords)
The key concepts in this essay include Cost-Benefit-Analysis (CBA), public economics, resource allocation, social welfare, discounting, net present value, internal rate of return, benefit-cost-ratio, measurement of costs and benefits, non-marketed goods, intangible elements, Pareto improvement, and Potential Pareto Improvements.
Frequently Asked Questions
What is the core argument regarding Cost-Benefit Analysis (CBA) in this essay?
The essay discusses the scientific validity of CBA, specifically arguing that it requires interpersonal comparisons of well-being, which complicates its status as a purely objective tool.
What are the main decision criteria used in CBA?
The primary criteria include Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit-Cost Ratios.
Why is the discount factor considered a critical issue in CBA?
The discount factor accounts for time preference and capital productivity. Choosing the right rate is complex but essential for comparing costs and benefits that occur at different times.
How are intangible or non-marketed goods measured in CBA?
Economists use shadow prices and methods like revealed preference or stated preference to estimate the economic value of goods that do not have a direct market price.
What is the difference between Pareto Improvement and Potential Pareto Improvement (PPI)?
A Pareto Improvement makes at least one person better off without making anyone worse off. PPI (or Kaldor-Hicks efficiency) suggests a project is beneficial if the gainers could theoretically compensate the losers, even if they don't actually do so.
- Citation du texte
- Jens Gehrmann (Auteur), 2000, Cost-benefit analysis is not scientific, because it requires interpersonal comparisons of well-being, Munich, GRIN Verlag, https://www.grin.com/document/2717
