Benefit-Cost Analysis

Benefit-cost analysis (BCA) is an economic tool that is designed to evaluate alternative public investments to determine if their benefits exceed their costs and by what magnitude. As a policy tool devoted to resource allocation, BCA is used to rank alternative uses of public resources to choose the decision options that provide the largest social benefits relative to the social costs that they incur. The cardinal rule is that no alternative should be funded unless its expected benefits exceed its costs. However, the stricter criterion is that one should select among alternatives those with the largest benefits [Page 78]relative to costs (highest benefit-cost ratio or net difference between benefits and costs) to get the greatest social gains. In education, one can view this as choosing ...