ABSTRACT
This chapter demonstrates the use of several decision-making metrics that can assist us in evaluating options. Economists suggest that actions have both benefits and costs. In benefit-cost analysis, benefits are measured simply as the relevant area under the demand curve since the demand curve reflects consumers’ willingness to pay. Economists start by thinking about how one would define the optimal amount of waste. The static efficiency criterion is very useful for comparing resource allocations when time is not an important factor. The traditional criterion used to find an optimal allocation when time is involved is called dynamic efficiency, a generalization of the static efficiency concept already developed. Benefit-cost analysis has been used to assess the desirability of efforts to control pollution. Estimates of benefits and costs must be aggregated in order to derive total benefits and total costs.
