Key Concerns with Cost-Benefit Analysis

1. Limited Consideration of Non-Quantifiable Benefits and Costs: Cost-benefit analysis typically relies on monetary values to assess different options, ignoring any potential non-monetary benefits and costs which may be more difficult to quantify and value. This includes things such as environmental impacts, social equity, political stability, and public opinion. 2. Imprecise Estimation of Benefits and Costs: Estimating the value of benefits and costs accurately is difficult and fraught with uncertainty, leading to the potential for inaccurate or misleading results. 3. Pervasive Value Judgments: Many aspects of cost-benefit analysis, such as discount rates and choice of currency, reflect value judgments that can have a significant impact on the outcome. Furthermore, the benefits and costs experienced by different people or entities are often not equal, making it difficult to balance them. 4. Assumption of Rationality: Cost-benefit analysis assumes that people will act in their own self-interest, which may not accurately reflect reality. People may be influenced by other social, psychological or ethical factors, or place greater importance on certain values that cannot be monetarily valued. 5. Opportunity Cost: Cost-benefit analysis does not take into account the opportunity cost of pursuing one option over another. This means that it does not consider how resources and investments could be applied differently to generate different benefits.