Economic valuation through cost-benefit analysis--possibilities and limitations.

Abstract

The economic approach used to evaluate effects on human health and the environment centres around cost-benefit analysis (CBA). Thus, for most economists, economic valuation and CBA are one and the same. However, the question of the possibilities and limitations of cost-benefit analysis is one of the most controversial aspects of environmental research. In this paper, the possibilities and limitations of CBA are analysed. This is done not only by explaining the central elements of CBA, but also by commenting on criticism of it. What becomes clear is that CBA is not only a mere mechanism of monetarisation, but a heuristic model for the whole process of valuation. It can serve as a guideline for collecting the necessary data in a systematic way. The limits of CBA can be mainly seen in the non-substitutability of essential goods, irreversibility, long-term effects and inter-generational fairness.