CHAPTER 6

Potential Pitfalls in Cost Benefit Analysis

The curious task of economics is to demonstrate to men how little they know about what they imagine they can design.

—F. A. Hayek

Chapter 6 Preview

When you have completed reading this chapter you will:

realize why cost benefit analysis (CBA) uses marginal benefits and marginal costs. The word marginal is used here to mean the “change in benefits” or “change in costs” for the project being considered;

understand that in certain instances assignment of dollar values as either a cost or benefit, does not affect net benefits; reduced delinquency, for example, can be viewed by one analyst as a benefit and by another as contributing to cost reduction;

be warned that the piling on of dubious ...

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