A Note on Cost Effectiveness

CBA has costs and benefits in same units — that's why we can subtract and get to net benefits. Sometimes getting them into same unit form is either not possible or undesirable.

  1. Sometimes the benefit is fixed – we need a way to feed 2000 homeless people this weekend – and sometimes the cost is fixed – we have $45,000 to get word out about this new vaccine.
  2. "Bang for your buck"
  3. Useful when you cannot (or do not want to) express costs and benefits in a common metric.
  4. Does NOT allow us to figure out whether benefit justifies price or to select levels appropriate for a project.

YES

  1. Costs of alternatives are same so we only need to compare benefits
  2. Benefits of alternatives are same so we only need to compare cost