ABSTRACT
This chapter discusses three key Cost-benefit analysis (CBA) issues: measuring costs and especially benefits, time values of costs and benefits and challenges to CBA. It is an economic tool to measure costs and benefits for public programs. Economists have been using CBA in evaluating various public programs. CBA conducted from a perspective of welfare economics is based on numerous principles and assumptions and analytical techniques. CBA conducted by economists tends to differ from that public administrators pursue. Public administrators are likely to measure budgetary costs or benefits. Thus, according to a standard CBA analysis, the governmental taxation program to address the negative externality turns the loss in social surplus into a social surplus gain. For instance, the U.S. Office of Management and Budget (OMB) Circular provides guidelines and discount rates for CBA of federal programs. CBA accounts for negative externalities in order to accurately measure the change in efficiency for any economic activities or governmental policies.
