A systematic method for evaluating a project, policy or regulation by identifying, quantifying (when possible) and discounting expected social costs and benefits to a common present‑value metric, and comparing their net present value or benefit‑cost ratio to inform decisions.

Principle

Under CBA, an intervention is economically justified if the present value of benefits exceeds the present value of costs (or the benefit‑cost ratio exceeds one), after applying appropriate discounting, relevant social weights and adjustments for uncertainty and externalities.

Demonstration

Illustrative appraisal: a transport project’s streams of construction costs, operating costs, travel‑time savings, accident reductions and environmental impacts are monetized where feasible, discounted at a transparent social discount rate, and aggregated; a positive net present value indicates that expected aggregated benefits exceed costs, supporting selection among alternatives.

Misapplication

Converting non‑market values (e.g., biodiversity, life‑years) to monetary terms with opaque or arbitrary methods, or using discount rates that ignore intergenerational equity. The error is treating an opaque monetization or unjustified discounting as if it produced a definitive welfare ranking.

Consequence

Provides a transparent framework for comparing alternatives, prioritizing resources and making trade‑offs explicit; however, results depend on assumptions (discount rate, valuation methods, distributional weights), so CBA can systematically bias decisions if assumptions are inappropriate or concealed.

Reversal

When benefits are incommensurable with costs (rights‑based constraints), distributional or procedural criteria dominate, or uncertainty is irreducible, CBA may be inappropriate as the sole decision rule; alternative frameworks (cost‑effectiveness analysis, multi‑criteria analysis) may be preferred.

Boundary

Applies to ex‑ante economic appraisal where outcomes can be projected and (at least partly) monetized and discounted; it does not by itself resolve equity, legitimacy or legal constraints, nor should it be the exclusive criterion in contexts with non‑commensurable values.

Semantic Tension

Efficiency (maximizing net social benefits) vs equity and rights: CBA emphasizes aggregate welfare but can conflict with distributive justice, legal entitlements or deontological constraints that resist aggregation into monetary terms.

Synthesis

CBA is a disciplined accounting device that makes assumptions and trade‑offs explicit; its value is procedural and informational rather than decisional by fiat—good practice requires transparency about assumptions, sensitivity analysis and complementing CBA with distributional and ethical considerations.