ABSTRACT
In this chapter we review the most widely used technical methods in policy analysis: discounting, cost-benefit analysis and cost-effectiveness analysis. These are all quantitative methods that rely on monetizing costs and benefits, rather than using qualitative or non-monetized metrics to assess the merits and drawbacks of a policy alternative. Discounting takes the time-value of money into account, by factoring in the opportunity costs of alternative investments. Cost-benefit analysis assigns dollar values to costs and benefits and calculates the net benefit to measure the overall welfare effects from an alternative. Cost-effectiveness analysis assigns dollar amounts only to the costs and compares them to non-monetized metrics of “success.” In this chapter we discuss what is both appealing and concerning about these approaches and propose a pragmatic strategy for combining these technical tools with other non-monetized evaluation metrics.
