Economic Aspects With Regard To Cost Benefit Analysis

Cost benefit analysis is an economically recommended basis of making decisions. It creates a very good view of the relationship between costs and benefits of a given project or transaction. This economic method gives an opportunity of comparison among various projects and options. The cost benefit analysis approach gives an opportunity of measuring the impact a project has on various dimensions; such as on the people taking part in it, those not involved, a project’s effects on externalities and public goods.

The government is believed to come in the market to economically give certain things that the market is believed incapable of doing. The market is thought to be incapable of providing public goods as well as externalities. Things that are classified as public goods tend to give the public service without discrimination. The public goods include home security, good surroundings, education and road network among others. Certain beliefs help in giving public goods certain characteristics. The two main characteristics are that if a person does not pay, he or she will be able to benefit from the public good (Perloff, ‎Karp &Golan, 2007). There is also the characteristic that no rivalry in the use of public goods (Cornes, 1996). Cost benefit analysis tries to criticize the aspect of free riding in public goods. This approach tries to show how people will enjoy things without spending a coin; however the loss or cost of not paying is higher. The cost to the people free riding comes up when you realize that opportunities will not be utilized or maximized on due to lack of funds. For example, when you look at road use every citizen has a right to use for free. When you try to think about how better the road would have become with each person contributing a small amount, then you see the bad side of this public goods’ aspect. Additionally, if it is an idea that people are watching while it is being demonstrated, then they will lose when it is not developed. The idea would have been about something that would benefit them more. This brings out the fact that such aspects are costly than beneficial when analyzed. Solving the cost benefit problem of public goods has been quite interesting.

The issue of cost and benefit with regard to externalities is a bit clear. Taking an example of first externality where people benefit from another’s good actions. It happens that nobody pays or compensates the other for a positive externality. The other dimension of an externality is where a person ends up incurring costs due to another person’s harmful actions. The person who hurts the others does not contribute towards the costs incurred by the harmed ones. With regard to externalities, it becomes very hard to make decisions on the basis of cost benefit analysis method. This is because it is hard to ascertain with accuracy extend of cost and benefit incurred within a single occurrence (Nas, 1996).

With all this in mind, we are in a position to pick out certain aspects from the Onandaga County case study. Some figures are well outlined to show the tradeoff between the benefits and costs.

Onondaga Solid waste policy
*Cost items*			Cost($)
Refuse Collection			$14,000
Collection sorting			$1,820,000
Setting up municipal facility			$45,000
Compositing			$9,100,000
*Total Project Costs ()**
Project Costs
	Project costs		$10,979,000
The benefit
Mulch production			$910,000

Direct Benefit		$910,000

There have been well planned economic methods of solving the public goods and externality issues. The free rider problem is always taken care of well by these methods (Altrichter, 2007). Methods such as attaching the cost of public goods to private properties have been a bit successful. People have not been able to feel the burden of paying towards the public goods since it has been well planned (Steinemann, 2011). The other way of dealing with this problem is through creating packages such as pay television networks, which creates exclusion. At the end, the benefits of such measures outweigh costs which are positive economically.

References

Altrichter,C. (2007).Experimental Evidence on the Free Rider Problem. Grin Verlag

Cornes, R. (1996).The Theory of Externalities, Public Goods, and Club Goods. Cambridge University press

Nas, T. (1996).Cost-Benefit Analysis: Theory and Application. Sage

Perloff, J., ‎Karp, L. &Golan, A.(2007).Estimating Market Power and Strategies. Cambridge University Press

Steinemann,A.(2011).Macroeconomics for Public Decisions .Askmar Publishing

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