The Cost of Cost-Benefit Analysis

By Amy Kochanowsky, staff editor As part of a recent Food for Thought discussion at the Sanford School of Public Policy, several professors discussed cost-benefit analysis (CBA), a tool widely used to evaluate public policy.  CBA is a useful way to quantify the impacts of a given policy by attaching a dollar value to each negative and positive outcome, and then weighing the negatives against the positives.  Policy makers can use CBA to determine if programs are effective, i.e. if their benefits outweigh their costs.  CBA is useful because it puts everything in terms of a value we can all understand: money.

While cost-benefit analysis is nearly ubiquitous in all fields of public policy, we must be cautious about when and where it is applied, because it assumes that all outcomes can be quantified in monetary terms.  If asked to conduct a cost-benefit analysis of a school program, would you be able to measure all of the outcomes?  Can you put a dollar value on the satisfaction and self confidence of a child?  When reducing results like this to a dollar value, you are most certainly losing something in the calculation.  This is the cost of CBA.

In the absence of a more perfect tool, CBA may be the best we can do.  However, it is important to realize the value judgments embedded in a public policy tool like this.  Understanding that a monetary value cannot capture every nuance of a policy outcome will allow policy makers to apply CBA more effectively.  Further, we all know that what is measured receives funding.  So perhaps reducing something to a dollar value is better than not measuring it at all.

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