Cost-Benefit Analysis Concepts and Practice

Public policies usually require resources (i.e., inputs) that could be used to produce other goods or services instead. Public works projects such as dams, bridges, highways, and subway systems, for example, require labor, materials, land, and equipment. Similarly, social service programs typically require professional employees, computers, telephones, and office space; wilderness preserves, recreation areas, and parks require at least land. Once resources are devoted to these purposes, they obviously are no longer available to produce other goods and services. As a result, almost all public policies incur opportunity costs. Conceptually, these costs equal the value of the goods and services that would have been produced had the resources used in carrying them out been used instead in the best alternative way.