Advantages And Disadvantages Of Cost Benefit Analysis

3.10 Criticisms and Limitations of Cost-Benefi t Analysis
Cost-benefits t analysis has seldom suffered from a shortage of critics. We review the main criticisms of the approach in this chapter.

1. False accuracy
It is sometimes argued that the use of the money yardstick for measuring costs and benefits lends a false accuracy to the result of a cost-benefit analysis. Analyses may be criticised for conveying a false sense of accuracy by including quantified values for non-monetary effects such as the value of forecast savings in human lives. Such values are often controversial and may diminish the authority of the analysis as a whole. On the other hand, analyses may be criticised for excluding intangible effects. Downs and Larkey (1988) state

5Equity overlooked
Cost-benefit analysis is also criticized for ignoring social equity. There are two main aspects to this criticism. First, it is argue that cost-benefit analysis reflects the basic compass reading of
Economics towards improving welfare irrespective of the identity of the beneficiary. The
Criticism is correct in theory but need not be so in carry out that is, the incidence of costs
And benefits can and should be clearly set out to assist the decision-maker .
Second, it is argued that cost-benefit analysis contain a unadventurous bias because its
Valuation principle, motivation to pay, depends upon ability to pay (i.e. wealth and income),
Which is unequally disseminated? Again, the criticism is valid in theory but need not be so in put into practice. Weights may be assign to benefits which accrue to specific groups, if there is a clear and explicit policy good reason for doing so. Also merely display the incidence of
(un weighted) costs and benefits will often provide useful indicators of the equity implications, in income distributional terms, of projects and programmes. It is then up to the political
Process to trade off evenhandedness and good organization

The treatment of intangibles (quantification) and the problem of equity have been discussed above. These issues represent limitations of the method in the sense that neither is addressed
‘automatically’ in the cost-benefit process. If the decision-maker is to be in a position properly to take account of intangible considerations and equity concerns, the analyst must, in a sense, go beyond the ordinary requirements of a cost-benefit analysis.
Similarly, when the decision-makers interest is naturally focused on the ‘bottom line’, it is easy for the analysis itself to be rather obscure. No analysis is better than the assumptions on which it is based and, in the interest of ‘quality control’, assumptions should always be made explicit. So the limitation, in a sense, is that the analyst can, if he or she chooses and if readers are not alert, take advantage of the user’s interest in the outcome of the analysis to conceal doubtful or fl awed assumptions.
Finally, it should be noted that, in cost-benefit analysis, a project scenario is compared with an alternative scenario based on estimates of what would have happened in the absence