Abstract
Cost–benefit analysis is a widely used technique of applied welfare economics, which is used to throw light on the social desirability of undertaking an economic project. A project can be defined as an act of investment, introduction of a new commodity or a change in policy. Its analytical foundations go back to Dupuit (1844) who in his classic paper on ‘consumers’ surplus’ can be said to have laid the foundations which in modified forms still inform a great deal of contemporary work. In an operational sense, there may be some justification for dating it back to the US Flood Control Act of 1936, as mentioned by Eckstein (1959). In postwar years, considerable impetus was imparted by the growth of a considerable literature on development programming where choice of investment projects figured very prominently. Tinbergen (1958, 1967) was amongst the first set of influential economists who strongly recommended the use of ‘accounting prices’, subsequently often referred to as ‘shadow prices’ for the appraisal of social worthwhileness of investment projects. Influential contributions were made in the 1960s by Little and Mirrlees (1968, 1974) which can be directly related to the work done by Tinbergen (1967). Marglin (1963) and Sen (1968) have provided major inputs into the discussion at different stages and were responsible along with P. Dasgupta in propounding a system of guidelines for project appraisal. The Little–Mirrlees work which was sponsored by the OECD has often been compared with the work done by Dasgupta, Marglin and Sen under the auspices of the United Nations through its specialized office at Vienna (UNIDO).
This chapter was originally published in The New Palgrave: A Dictionary of Economics, 1st edition, 1987. Edited by John Eatwell, Murray Milgate and Peter Newman
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Chakravarty, S. (1987). Cost–Benefit Analysis. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_381-1
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Cost–Benefit Analysis- Published:
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Cost–Benefit Analysis- Published:
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DOI: https://doi.org/10.1057/978-1-349-95121-5_381-1