CHAPTER 6
COST–BENEFIT AND COST–EFFECTIVENESS ANALYSES AND ASSESSMENTS
6.1 INTRODUCTION
The broad goals of cost–benefit analysis and cost–benefit assessment are to provide procedures for the estimation and evaluation of the benefits and the costs associated with alternative courses of action, including their analysis and assessment. In many cases it will not be possible to obtain a completely economic evaluation of the benefits of proposed courses of action. In this case the word benefit is replaced by the term effectiveness, and we determine a cost–effectiveness analysis and assessment rather than a strictly economic analysis and assessment of the net benefits associated with alternative courses of action.
We may view economics as a descriptive or as a normative science. The often retrospective study of the decisions people and organizations make with respect to the employment of scarce resources for production and consumption is a descriptive study. The study of the decisions that people and organizations should make with respect to resource allocations is a normative study. Our studies of the behavior of firms and consumers in Chapters 2 to 4 are basically studies of the normative behavior of individual firms and consumers. Often descriptive behavior will be approximately the same as normative behavior, at least in a substantive or “as if” fashion. Of course, normative implies value judgments. Here “normative” would have to imply “assuming that firms and consumers wish to maximize ...
