chapter  9
Estimating social costs and benefits
Pages 11

True social costs and benefits change the economic worth of society as a whole. Allocative efficiency is the key principle of cost-benefit analysis. Benefits are valued as the willingness to pay for utilities. Costs are valued as opportunity cost or the foregone return in its best alternative use. Sinden and Thampapillai (1995) use net social benefit to measure economic welfare by subtracting opportunity cost from willingness to pay. The analysis should include all changes in benefits/costs, externalities and unpriced outcomes. It should exclude sunk outcomes, fixed costs, transfer payments, double counting and international outcomes. It should consider taxes and subsidies, government charges, changes in asset values, and secondary benefits and costs. Social costs and benefits may be valued with market prices or without market prices.