Economics Dictionary of ArgumentsHome
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| Cost-benefit analysis: Cost-benefit analysis is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options that provide the best approach to achieving benefits while preserving savings. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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John R. Hicks on Cost-Benefit Analysis - Dictionary of Arguments
Parisi I 357 Cost-benefit analysis/Hicks: Benefit and costs are determined in principle by the measure developed by J. Hicks (1939)(1) known as the “compensating variation” (CV). In practice the measures are usually “consumer and producer surpluses” which are approximations of the Hicksian measure. Consumer surplus is approximately the amount one would pay minus the amount actually paid. Thus if a price is a cup of coffee is $1.00 and the willingness to pay for it is $2.50 (absent other vendors), the consumer surplus is $1.50. Producer surplus is the economic rent or the amount that could be taken away without affecting Parisi I 358 affecting supply. For example, considered as a whole, most of the wages of college football coaches is economic rent since, were their salaries lowered en masse, they would be unlikely to leave for other jobs. The measures correspond to willingness to pay (WTP) for gains and willingness to accept (WTA) payment to bear costs, which measures are consistent with the psychological (utility) effects associated with prospect theory, which is steeper for losses than gains, convex in losses, and concave in gains (Tversky and Kahneman, 1992)(2). >Willingness to pay/Tversky/Kahneman, >Cost-benefit analysis/Zerbe. 1. Hicks, John R. (1939). “The Foundations of Welfare Economics.” Economic Journal 49: 696. 2. Tversky, A. and D. Kahneman (1992). Journal of Risk and Uncertainty 29. Richard O. Zerbe. “Cost-Benefit Analysis in Legal Decision-making.” In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconHicks I John R. Hicks Mr. Keynes and the "classis"; a suggested reinterpreation 1937 Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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