cost-benefit analysis is a policy evaluation tool closely related to cost-effective-analysis. All of the problems in measuring the costs of public programs discussed in chapter 6 apply to this evaluation technique also. The major difference between cost-effectiveness and cost-benefit analysis relate to how program outcomes are measured. We noted in chapter 6 that in cost-effectiveness-analysis is, program outcomes or consequences are measured in terms of the most appropriate natural effects or physical units. These basic measures can simply be counted to determine the effectiveness of the intervention and then compared with its costs. Thus, cost-effectiveness results are expressed in terms such as cost per HIV infection prevented, or cost per life-year saved from a cholesterol reduction program.
cost-benefit analysis attempts to place a dollar value on the outcomes of a
program or intervention. It tries to answer the question: How much is society willing to pay for the output of this program, or what are the benefits to society of having this output? The dollar valuation of this output (the benefits) is then compared with the costs of producing it. If the benefits exceed the costs, the program is considered to be an efficient use of society's resources. With cost benefit analysis, the policy analyst must confront questions like what it is worth to society to prevent an HIV infection, or what is the value to society of life saved by a cholesterol reduction program. In this chapter we will focus on the approaches used to answer these difficult questions.
The case for chapter 7 involves the updated air quality standards for particulate matter (smog and soot) issued by the US Environmental Protection Agency (EPA) on October 17,2006, and partially remanded by the US Court of Appeals for the District of Columbia Circuit on February 24, 2009. This case study discusses the policy debate over the increased air quality standards, the role of various stakeholders in the regulatory process, and the use of cost-benefit analysis in a decision-making process.
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