Cost benefit analysis looks at social benefits and social costs
Cost benefit analysis involves a number of steps:
- Project appraisal
- Look at the value of social costs and benefits
- Make an adjustment for time – discount future values so you can look at them at the current rate
- Compare social costs and benefits
- Look at net rate of return for each project
Advantages
- Allows for efficient allocation of resources
- Decreases negative externalities
Disadvantages
- Can be hard to put values to social costs and benefits
- Can be difficult to include all externalities
- Costs and benefits can be different for different groups
