period—the time for the benefits of a change to repay its costs.
A cost-benefit analysis is often carried out using only financial costs and
benefits. For example, a cost-benefit analysis of a new road would measure the
cost of building the road and subtract that cost from the economic benefit of
improving transport links. It would not measure either the cost of environmental
damage or the benefit of quicker and easier travel to work. A more sophisticated
approach is to attempt to put a financial value on intangible costs and benefits,
which is highly subjective.
A cost-benefit analysis applies to three economic situations:
■ It can help judge whether public services that are provided by the private
sector are adequate.
■ It can be used when judging and assessing inefficiencies (market failures)
in the private sector and their impact on the health, safety, and
environmental needs of the county.
■ It helps in determining how to meet societal needs in a cost-effective
manner in areas that only the government can address (e.g., defense,
preservation of scenic areas, environmental protection, etc.).
Framework of Cost-Benefit AnalysisStep Description
Cost-benefit Determine an action and levels of action that
achieve the greatest net economic benefit.
Exploring options and determining incremental
levels of remediation provide the most benefit
for the least cost.Cost-effectiveness Implementing a specific environmental, health,
or safety objective at the least cost. Emphasis is
on achieving the objective. Flexible regulatory
guidelines are adapted to find the lowest cost to
solve a problem.Health or
environmental
protection standardsReducing risk to the public whatever the cost.Risk-benefit Balancing health or environmental protection
with the costs of providing the protection.