ABSTRACT
It was demonstrated by Scitovsky that there can be cases where the changes in incomes from doing a project lead to a paradox – the potential Pareto improvement can be used to justify a change, and also to return to the starting point. This chapter demonstrates that Paretian welfare economics can provide a theoretical framework for economic evaluation, but also that there are problems in deriving clear rules from this framework. In economic evaluation some costs or benefits often occur at the same level for several years. Instead of calculating the present value for each year, we can use an annuity factor, which is just the sum of the different present values. There is a fairly clear consensus that both costs and benefits should be discounted in economic evaluation, and that the discounting should be at a common rate.
