Chapter 9 Chapter Summary

The aim of a cost–benefit analysis is to systematically assess the costs and benefits of all alternatives available to the decision maker before a decision is made. To facilitate such comparisons, all costs and benefits are routinely assigned monetary values. This includes items that can be very difficult to evaluate in monetary terms, such as pollution or the loss of human life in accidents. Critics of cost–benefit analysis object that the practice of assigning monetary values to nonmarket goods such as human life and pollution is unethical. Some argue that human life has infinite value (which makes it difficult to explain why it is better to save more rather than fewer all else being equal). Another way to understand the objection is to claim that a statistical life has no precise monetary value, or no monetary value at all.

The connection between cost–benefit analysis and utilitarianism is complex. Many of the moral objections that can be raised against utilitarianism can also be raised against the use of cost–benefit analysis. However, utilitarians typically equate good and bad consequences with well-being and suffering (or happiness and pain, or the satisfaction of preferences), rather than with monetary costs and benefits. Some authors argue that it is possible to assign values to nonutilitarian entities such as rights, duties and virtues within a cost–benefit analysis. Philosopher Sven Ove Hansson writes, “Deontological requirements can be included in a CBA, for instance by assigning negative weights to violations of prima facie rights and duties, and including them on the cost side in the analysis.”

While advocates of cost–benefit analysis admit that it can be difficult to assign monetary values to the natural environment and remains from the past, they do not believe it is impossible to do so. Hedonic pricing and the travel cost method are two commonly used methodologies for assigning monetary values to nonmarket goods.