Answer to Question #33245 in Economics of Enterprise for kunal Askurn

Question

discuss the usefulness of a cost and benefit analysis in policy decision making. (15 marks)

Answer 1

Cost-benefit analysis (CBA) is one of the oldest methods of evaluating a project or a proposal or a policy. Standard economic theories claim that
economic efficiency, measured by the difference between benefits and costs, should
be the touchstone for making policy choices.

In recent years there has been an interesting debate about its utility in evaluating social and welfare policies and environmental regulations. Opponents
point to the difficulty in identifying, quantifying and monetizing the marginal
costs and benefits associated with these policies. They argue that such
policies suffer from numerous externalities, both positive and negative, that
are outside the framework of quantifiable parameters. Further, CBA is silent about
issues like fairness and processes and distribution of costs and benefits.
Regulatory policies with aggregate benefits exceeding aggregate costs will also
have winners and losers.