Cost-benefit analysis is our systematic tool for designing policies that fix market failures. CBA helps us make tough choices by comparing what we give up against what we gain from any policy proposal.

Engagement Message

Why do you think governments use formal analysis instead of just relying on good intentions?

Here's the core idea: list all costs and benefits, then compare them. If benefits exceed costs, the policy creates value for society. If costs exceed benefits, we should look elsewhere.

Engagement Message

This may simple, but what makes this tricky in real-world policy decisions?

Costs and benefits aren't always obvious. A highway has clear construction costs, but what about time saved by commuters? Environmental damage? Impact on local businesses? These hidden effects often matter more than obvious ones.

Engagement Message

Can you think of a "hidden" cost or benefit from building a new park?

We need systematic checklists to avoid missing important stakeholders or impacts. A good CBA ensures we consider: Who's affected? What costs do they bear? What benefits do they receive? How do we measure these?

Engagement Message

Which stakeholder group might we accidentally overlook when planning a new bus route?

Let's preview our checklist with the pollution example from Unit 1. A carbon tax would have costs (reduced production, job losses, higher prices) and benefits (cleaner air, better health, reduced climate damage).

Engagement Message

What other costs or benefits might we need to consider?

Some effects are easy to measure (tax revenue in dollars) while others are harder (health improvements, climate benefits). Our systematic approach handles both types, so we don't ignore important impacts just because they're hard to quantify.