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Saturday, August 29, 2015

CBA aim?

The aim of CBA is to put a monetary value on the benefits expected from
the project and compare these to the costs which are expected to be
incurred. If the benefit exceeds the cost, there is economic
justification for the project to go ahead. This simple decision rule is
based on the Kaldor-Hicks criterion developed through the work
of Nicholas Kaldor (1939) and John R. Hicks (1940).  Kaldor argued
that policies which resulted in an increase in aggregate real income
were always desirable because the potential existed to make every individual better off. Kaldor also noted that whether actual compensation
should take place or not ‘is a political question on which the
economist…could hardly pronounce an opinion’. Hicks, one of the most
prominent economists at this time, accepted Kaldor’s approach which
subsequently came to be known as the Kaldor-Hicks criterion. The Kaldor-Hicks criterion provides the foundation for the net benefits criterion commonly associated with CBA: adopt only policies which have positive net benefits (Boardman et al, 2008, 31). 



What is CBA?

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