Pertemuan 7

Cost-benefit
Measuring cost and benefits in monetary term

Destanul Aulia, SKM, MBA, MEc PhD

COST BENEFIT ANALYSIS
what is it?
what is it appropriate to use it?
issues raised by valuing benefits
 What is CBA?
benefits valued in monetary form
discounted stream of incremental future benefits compared
with discounted stream of programme costs

positive net social benefit = programme worthwhile

if budget constrained, fund projects according to size of NSB
 Strengths of CBA
gives clear conclusion without needing comparison with
other programmes

can value all costs and benefits (e.g. process utility; social
externalitities)

allows comparison with all other interventions, in health care

or other sectors

therefore useful for allocative efficiency

value judgements come from indivuals
 Valuing direct benefits
costs of prevention, control and treatment which are avoided
as a result of the programme

costs to health service, patient and society generally

relatively straightforward to measure
as with costs, must be causally connected to programme
 Health outcomes: human capital
approach
Gains due to avoidance of:

deaths;
incapacity to work;
reduced productivity at home;
reduced benefits from education
Uses market wages to value production gains

Can be used as partial or sole valuation

 Hum.cap.: practical problems
imperfections in wage markets
need to price non-marketed labour e.g. housework or
subsistence farmers - opportunity costs or replacement cost
method

dealing with unemployment

adjusting for labour force participation
need for dynamic model
 Human capital: fundamental
problems
What is the point of being alive: to produce or consume?!
net vs gross production
perspective should be individuals, aggregated to give total
value of benefits

HCA OK for partial valuation though, where production

gains significant