ABSTRACT
This chapter emphasizes on benefit-cost as a decision technique, although some attention is also directed to benefit-cost as investment theory. Benefit-cost analysis accepts as a starting point the principles of market-based measures of the valuation of both benefits and costs. The controversial issues with regard to investment criteria in general are as relevant to benefit-cost analysis in the public sector as they are to private investment. The notion of a choice set reflects the need to limit the range of possible projects for comparison within a particular benefit-cost analysis. Using the analogy of benefit-cost analysis and private investment decision-making, the selection of projects is similar to the ranking of alternative private investment programs. Water resource agencies in the US government have traditionally approached the measurement of benefits by a classification that distinguishes among primary, secondary, and intangible benefits. The most controversial aspect of benefit-cost analysis is the choice of the appropriate rate at which to discount future benefits and costs.
