Introduction

Summary

Should Chicago build a new airport, or India a new steel mill? Should higher education expand, or water supplies be improved? How fast should we consume non-renewable resources and what are the costs and benefits of protecting the environment? These are typical of the questions on which cost–benefit analysis has something to say. However, there is no problem, public or personal, to which its broad ideas could not be applied.

The chapters in this book concentrate on those issues that are common to all cost–benefit appraisals. We have cast this introduction in a form that is theoretical and also shows how one might tackle a particular problem. We take an imaginary project and show how the chapters throw light on the analysis of this project. But first a few remarks are needed on the general ideas involved.

The basic notion is very simple. If we have to decide whether to do A or not, the rule is: Do A if the benefits exceed those of the next best alternative course of action, and not otherwise. If we apply this rule to all possible choices, we shall generate the largest possible benefits, given the constraints within which we live. And no one could complain at that.

Going on a step, it seems quite natural to refer to the ‘benefits of the next best alternative to A’ as the ‘costs of A’ For if A is done those alternative benefits are lost.