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Cost–Benefit Analysis
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Cost–Benefit Analysis

This Element on cost-benefit analysis provides a summary of recent theoretical and empirical developments and summarizes state-of-the-art stated-preference and revealed-preference valuation methods. The Element discusses how to assess small (or marginal) as well as large (or non-marginal) projects that have a significant impact on prices and/or other economic variables. It also discusses distortions like taxes, market power, and sticky prices. In addition, risk/uncertainty is considered. A novel feature is the elaboration on flexible evaluation rules for reasonably small projects. Conventional point-estimates of projects should be used with care, because they typically give biased results.

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  • COPYRIGHT: © Per-Olov Johansson and Bengt Kriström 2018
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We are grateful to the editors of the Cambridge Elements series in Public Economics, Professors Robin Boadway, Frank Cowell, and Massimo Florio, and the Associate Editor Dr. Chiara Del Bo for their generous support. Two anonymous reviewers provided us with detailed and very constructive comments. However, any remaining errors and other flaws are our own responsibility.


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