A critical discussion on appication of cost – benefit anaysis in environmental management

Abstract

Cost-benefit analysis (CBA) is one among tools widely used for policy and project analysis around the world. In order to enhance quality of decision making by government and its agancies, the environmental impacts of projects/polices have been incorporated in CBA process. The method itself seems to be simple, but there are a number of technical problems existing in applying CBA to environment management issues. This paper firstly reviews the welfare economics foundation of CBA to show the well-established theoretical base of this analysis method; and then briefly describes the common stages in CBA process. From such methodological reviewing, potential problems in applying CBA to environmental issue within economic projects and policies are pointed out and critically argued. Those are aimed to assist policy makers obtaining a better use of CBA tool in their decision making process in order to select the best projects/policies in terms of efficiency, efectiveness and equality to society.