Cost-benefit analysis (C-BA) is a form of economic analysis in which costs and benefits are quantified and compared. C-BA is used primarily to evaluate public expenditure decisions with regard to such factors as esthetics, ethics, and long-term environmental costs (e.g., pollution costs).

Origins in the 1930s

C-BA had its origins in 1936 with the dam projects of the Works Progress Administration (WPA) in the western United States. At the time the federal government's policy was that projects would only be started if accrued benefits exceeded accrued costs. Although such a statement would be judged quite simplistic by today's standards, this philosophy is still the basis for C-BA.

Costs vs. benefits. The power of C-BA lies in its ability to organize and evaluate an action's likely effects and overall impact on economic welfare. CB-A states that if a project is to proceed on a successful basis, then...